Oracle-PeopleSoft: One year on
Published: 12 Jan 2006 14:00 GMT
...targeted for growth, is expected to fall to $916m for the 2005 calendar year, a 32 percent drop compared with the companies' combined total in the prior year, according to a research report by Brent Thill, a Prudential Equity Group analyst.
Oracle, however, touted a 24 percent increase in second-quarter applications licence revenue when it reported its financial results in December. But there's a catch: Oracle is comparing post-merger numbers to a year-ago total that didn't include PeopleSoft's results. As a result, analysts say, it does not provide an apples-to-apples comparison.
An Oracle spokeswoman declined to comment on Thill's assessment, noting that the company does not break out such figures.
Oracle has some backers on Wall Street, though they say it could be years before results of the merger are really known.
Analyst Brad Reback of CIBC World Markets said he was a "fan" of the deal when it was first announced in June 2003 and remains one today.
"They have hit most, if not all, their goals," Reback said. "They have good maintenance renewal rates and cost synergies."
He noted that during the company's last earnings report, Oracle executives indicated that the maintenance renewal rate was exceeding previous expectations and that the cost savings they expected to achieve in the year occurred within the first two quarters after the deal's close.
During Oracle's second-quarter conference call with analysts last month, Safra Catz, Oracle's chief financial officer, said: "Customers are renewing their subscriptions and buying more... In fact, PeopleSoft renewal rates are higher than when PeopleSoft was a standalone company."
Peering into the future
Although the merger has passed the one-year mark, it could be a decade before the deal can definitively be called a success or failure.
"We struggle with many of Oracle's claims, primarily that many of its 10-plus acquisitions over the past year are 'already integrated.' We believe Oracle is just beginning the integration work of its applications acquisitions, with an estimated shipment of the fused product suite expected in 2008, per management," Thill said. "Many in the industry believe this goal is simply not achievable, leaving 2009 or 2010 as a more realistic ship date for the integrated suite."
Add to that a few more years before Oracle will have customer references for its Fusion suite that it could use to attract more users to adopt the technology, analysts note.
Analysts expect customers to take a wait-and-see approach to adopting the Fusion technology before gutting expensive PeopleSoft applications that may have been difficult to install and maintain.
"Users right now are interested in protecting their current investments," Richardson said.
In the meantime, Oracle also faces increasing competition from other corners of the market, from software as a service to open source software.
Last October, Oracle announced plans to offer free database software in response to the open source movement. IBM has indicated that it's considering a similar plan.
Oracle is also seeing increased competition from Salesforce.com, which operates a software-as-a-service subscription business, which means customers aren't required to install software or additional hardware, but instead pay a fee for accessing service over the Web. And Oracle archrival SAP last August announced plans for hosted CRM software.
While open source databases and software as a service are competitive threats to Oracle's business, Richardson said, Oracle faces a greater challenge in retaining customers if it bumps up its maintenance fees by a wide margin or does not listen to its customers.
"If IBM does DB2 as open source, then the threat level for Oracle will jump from about a 7 or 8 to around a 3," Richardson said. "But their biggest worry is SAP if they re-architect their whole CRM from the ground up."
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