And they found several key problems, even though most analysts say the
long-term outlook for the company remains strong.
Although economic turmoil in Asia, a region that accounts for 15 percent of Oracle
sales, contributed to some of the earnings shortfall, the company's core business is
in need of a tuneup, analysts said.
''Their database sales were disappointing and their applications sales were
disappointing,'' said Carl Olofson, research director at International Data Corp., a
market research firm in Framingham, Mass. ''Those have been the drivers for their
growth.''
Oracle writes database software, the computer programs that companies use to
store and retrieve huge amounts of business information in their computer
networks. Although that market represents the core of Oracle's business, its
growth has slowed to about 20 percent a year.
In recent years, Oracle also entered the fast-growing market for business
applications, the software that taps those databases to help company managers run
core business functions such as accounting, human resources, payroll, distribution
and manufacturing.
Although Oracle has nearly half the market for large databases, the company is
facing tough competition from Microsoft Corp. for medium-sized businesses
seeking a low-cost product. It is that low-end market, where the two companies
run neck-and-neck with about 30 percent of total sales each, that accounts for
most of the growth in the database business today, Olofson said.
Microsoft's growth in this area has been more rapid. Oracle has cut its prices
significantly to match those of Microsoft. ''Clearly . . . that has cost them revenue,''
Olofson said.
Other analysts said the sluggish performance of the company's applications
software could turn out to be the main source of concern in the long term.
''They have been spending a ton of money building up this applications business,''
said Robert Tholemeier, an analyst with First Albany Corp. in New York. Oracle
reported $108 million in sales for those products in the second quarter -- a small
proportion of its overall $1.6 billion in revenue for the period -- and that is not
enough, Tholemeier said. ''Oracle should be doing about $200 million in
applications. Their competitors are able to do it.'' |
