Top Ten Reasons Why Oracle is on a Roll

Oracle’s February Q3 results provided further dramatic evidence of the company’s success with impressive performance across all product lines and geographies. License growth of 27% year to year, coupled with GAAP and non-GAAP operating margins of 32% and 39% respectively are BIG numbers particulary when one considers that total quarterly revenues were almost $4.5 billion. As so much has already been written summarizing the specifics of the quarter, we thought it would be more interesting to highlight (in order of importance) the reasons behind Oracle’s strong growth.

#10 Oracle was early in its recognition of the growing maturity of the enterprise software market and the need for substantial consolidation.

#9 Oracle’s CEO Larry Ellison has refocused his energies on technology and vision rather than sales.

#8 Oracle’s sales force is highly motivated by a rich compensation structure and the benefit of a substantially enhanced strategic presence in accounts.

#7 Addition of new offerings in major verticals through acquisitions such as Retek, ProfitLogix, i-Flex, Portal Software and others, have opened up vast new markets

#6 “Lifetime” support for all acquired products, reducing customer anxiety and further reinforcing a customer-centric view.

#5 High performance middleware products are virtually free – allowing Oracle to leverage its leading position in relational DBMSs with the rapid increase of breadth and depth of its applications.

#4 Competitor SAP has been slow to react and continues to be focused more on the SMB market than the bigger picture.

#3 Acquisitions of PeopleSoft/JDEdwards and Siebel in particular, combined with Oracle’s very large presence in the DBMS and applications markets, means a huge number of customers have multiple offerings from Oracle and need to re-examine their licensing profile.

#2 Fusion is a compelling open, standards based, vision of applications services that will drive a new wave of profound improvements in business productivity.

#1 Oracle’s revamped management team has proven itself remarkably adept in navigating a complex and aggressive growth strategy, with no obvious missteps.

Oracle Buys Hyperion, Why We're Not Surprised -- plus A Couple of Thoughts on the Quarter

Oracle’s announcement last week that it has reached agreement to acquire Hyperion for $3.3 billion or an enterprise value of $2.9 billion reflecting Hyperion’s net cash position of $450 million is not surprising and makes a great deal of sense. We’re not going to review the numbers here apart from noting that the valuation looks reasonable since the basic financial elements have been widely discussed in the financial community. While we have reservations owing to the challenges of any acquisition – integrating people, offices and systems in an effective manner so as to maintain the customer base and ideally leverage the technology, we think the deal is pretty compelling. Some investors may begin to worry more about these issues given that Oracle has been on a binge that reminds us of Computer Associates buying spree more than a decade ago. Nevertheless, we think Oracle’s internal systems are best in class and that management is up to the task.

So why do we think the Hyperion deal is not surprising and a smart move on Oracle’s part?

• First, we know from our discussions with industry contacts that Oracle is doing extremely well with Siebel’s analytics now known as Oracle Business Intelligence Enterprise Edition (or OBIEE for short).
• Second, we know that Hyperion’s core products are natural complements for these analytics. Hyperion’s more than 12,000 customers including 91% of the Fortune 100 represent a very attractive customer base for Oracle.
• Third, that the Hyperion products performance management products and OLAP engine broadly rounds out Oracle’s offering across all the major categories in the business intelligence space.
• And, finally as has been widely noted Hyperion’s products are broadly implemented in conjunction with SAP and Microsoft products (providing Oracle another key element in its technology stack). Oracle has been working hard to “surround SAP” as evidenced by the acquisitions of Siebel for CRM, PeopleSoft for HR, not to mention the vertical acquisitions in the retail and utilities sectors and the continuing expansion of the Fusion Middleware business.

Regarding the fiscal third quarter which ended last week, our checks have been encouraging but do not suggest a blow out quarter. Discussions with deal advisory contacts indicate a good amount of activity, but broadly represented by small and medium sized deals rather than “mega” deals. Likewise discussions with applications consultants indicate generally favorable attitudes towards Oracle, in sharp contrast to the sentiment a year or so ago and a healthy amount of activity. Finally field checks have been pretty positive. We have heard that Oracle has tightened on expenses a bit, in particular limiting travel by employees for internal meetings. We think this is a good move on several counts, first it helps contain spending, but more importantly it notably increases the time and focus on customers. Our assumption as of now is that when Oracle reports its February quarter results on March 20th that revenues and earnings will be toward the upper end of guidance.

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