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What ails Oracle?

Tags:
Database,
Sales,
Business,
Oracle

Mike Ricciuti CNET News

Published: 17 Sep 2004 15:30 BST

Analysts maintain that the PeopleSoft takeover attempt has clearly hurt Oracle's sales. "They've made some excuses, but I think that they're hiding the fact that the publicity around the PeopleSoft takeover has hurt their business. Just like it has hurt PeopleSoft's business, it has hurt Oracle's business," said Paul Hamerman, an analyst with Forrester Research. PeopleSoft reported lower than expected revenue for its second quarter, ended on 30 June.

Rival SAP has been winning deals, Hamerman noted. "The competitive deals are going SAP's way. If you look at SAP, they have had substantial growth in the US market and meanwhile, Oracle's apps revenues are off in this quarter, and PeopleSoft's have been off for the last couple of quarters. I think that it is related to the trial."

There are other factors at work. Overall, the enterprise applications business is in a slump and even market leader SAP has admitted that times are tougher. AMR Research projects that new license sales will increase this year, but by just 3 percent for core enterprise resource applications, to $15.8bn.

Moreover, it's unclear whether that prediction will hold, given diminished spending expectations for the technology market as a whole. Goldman Sachs, which regularly surveys chief information officers, said in July that tech spending would grow by 2.3 percent this year. But this week, the company revised its prediction to say spending will rise just 0.4 percent for the year.

Hard road ahead
None of this will come as news to most enterprise software makers, which have struggled to sign new deals in recent months. Their best customers -- big multinational companies -- are trying to do more with less by exploiting to the fullest the software they already have in house. When they do buy, it's usually add-ons to existing systems.

Software makers are attempting to pump up revenue from maintenance, which includes fees derived from product updates and support. Oracle on Tuesday said maintenance revenue grew by 14 percent in its most recent quarter, compared with the same period last year, and now constitutes 53 percent of the company's total revenue, up from 50 percent of total revenue one year ago.

An industry that thrived on the megadeal during the 1990s, when new, multimillion-dollar contracts were commonplace, is now adjusting to smaller deals. SAP's chief executive, Henning Kagermann, said earlier this year that the size of the average SAP sale has gone down in recent years. "We will see some increase in deal size. But we will not see a return to the old days," he told ZDNet UK parent site CNET News.com.

The applications business has been a historical trouble spot for Oracle in particular. Despite the company's clout in the database market, Oracle hasn't always been successful in converting those customers into applications buyers. The thinking is that, since business applications run on top of a database, Oracle -- which leads the market for database software on servers other than mainframes -- should have an inherent advantage over its competitors.