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What ails Oracle?

Mike Ricciuti CNET News.com

Published: 17 Sep 2004 15:30 BST

But Oracle trails both SAP and PeopleSoft in the enterprise applications market, and competition will likely intensify if Microsoft -- which clearly has an interest in expanding its applications business -- enters the market in the next few years. The software giant disclosed earlier this year that it had started merger discussions with SAP, but said those talks had ended.

Oracle's claim that the application sales slowdown is simply a one-quarter aberration will soon be put to the test. The company plans to launch Oracle 11.5.10, an update to the company's suite of business applications, in the next few months and Oracle management expects customers to buy in earnest. "We expect the release of 11.5.10 later this year to help drive customer demand," Oracle's You said on Tuesday.

Oracle "can probably get some sales momentum from that", Hamerman said.

In addition, Phillips indicated that Oracle may soon certify its applications to run on top of the popular 10g release of Oracle's database software, which could drive new sales.

Oracle has also revamped its application software sales force. The company claims that greater specialisation among sales personnel will lead to better growth in the long run. And Phillips indicated that he expects a greater volume of new sales in the coming quarter.

But one thing that won't change soon is widespread discounting, which has become the bane of enterprise software makers in recent months. During the Oracle-PeopleSoft antitrust trail, several technology buyers and company executives testified that large-scale discounts on enterprise software licence fees -- of up to 90 percent -- are now commonplace. Those big discounts eat into software makers' sales and profits.

The trend started several years ago and isn't expected to stop anytime soon. In a recent Forrester Research survey of 25 IT managers in companies with at least $1bn in annual revenue, roughly half expect discounting to continue through 2004 and in the foreseeable future.

"Discounting is still fierce," Charles Phillips, Oracle's president, said during a conference call on Tuesday. "We just have to live with that -- that's the way the market is."

News.com's Alorie Gilbert contributed to this story.