Oracle Q4 – Further Validation of Oracle’s Consolidation Strategy

Well it’s that time of year again. No we’re not referring to the upcoming July 4th holiday, rather we’re talking about the all important upcoming May fourth quarter report from Oracle.

As longtime observers know, Oracle’s Q4 results are disproportionate to the rest of the fiscal year and typically serve to set the tone for the upcoming year. The May fiscal 2006 performance was a blockbuster which pushed the stock price beyond its longstanding trading range of $12-$14 into an entirely new range of $15-$19. With the quarter having ended two weeks or so ago, the early betting is pointing to another powerful performance which will lead the stock into a higher trading range.

Our checks to date generally confirm these expectations.

• Field sources have been very optimistic and excited throughout the course of the quarter and there have been no signs that the company did not execute well.
• The services ecosystem around Oracle has been going flat out.
• Finally our discussions with various third party contacts including leading market research firms that provide sophisticated deal advisory services all point to a record level of activity and a preponderance of larger deals.

Since we no longer maintain detailed earnings and cash flow models for Oracle we are not going to discuss estimates apart from stating that we would be surprised if Oracle doesn’t beat the high end of their guidance ranges of license revenue growth of 5% to 15% year over year and non-GAAP EPS of $0.34. A big quarter against a tough year ago comparison should further validate the success of Oracle’s consolidation strategy. While our contacts are almost entirely North American based, we have no reason to expect that Oracle’s performance in key international markets wasn’t good. In addition, we believe that a comparatively weak dollar through the quarter didn’t hurt.

So after many years of skepticism towards Oracle, what’s driving the company’s success today? We believe that Oracle’s management of its acquisitions has been highly effective, particularly with respect to providing customers an increasing sense of confidence that Oracle will continue to support these products while extending their capabilities based on the company’s strong DBMS and middleware foundation. In addition we continue to believe that despite many cross-currents in the tech spending environment that Oracle is benefiting from its increased breadth and depth of applications, as well as the company’s larger scale and the realization on the part of many customer organizations that after the boom period they have underinvested for a number of years.