Does anyone look at the fundamentals? Historical growth rate is irrelevant, it's what the growth rate will become. (Analysts don't pay much attention to 3 to 5 yr growth rates in their coverage.) You have to look at ORCL's core businesses and their underlying growth rates. That can be hard to do however, orcl has lots of flexibility in how it allocates license revenues for instance. Right now, in doing battle with SAP, they're trying to show high growth in apps and shifting revs from dbms to reflect this. Here's my take:
Apps: high growth for next 6 months or so, then a dramatic slowing as the Y2K bubble ends. Could be some upside with SFA but that market is still small relative to orcl. datawarehousing is attractive but i think that business stays quiet for the next 2 years while the glass house concentrates on Y2K. net net: APPS 40% to 70% growth for next 6 months. Tough comparisons and y2k slow growth to 5% to 20% in 2nd half 1998.
DBMS: High end of market is maturing, though oracle is showing strength in NT for now, that reflects sales into installed base of customers. As MSFT sql server scales up in performance oracle's 10x price disadvantage and inferior OS integration will be a major issue for the emerging mid range market. (Also a problem for ORCL in the apps business in the midrange market.) Net: growth probably remains stagnant in the 10% - 20% range for a while. (I know the DBMS market is still relatively unpenetrated, but that is much more the case at the low end of the market. Most large corporations have pruchased enough UNIX DBMS capacity to last for a while. Moreover, DBMS's are licensed on users or CPU capacity, not total data. Finally DBMS growth is based in increasing numbers of new contracts.)
Services: Demand is there without question for the next two years at least. Challenge of hiring and staffing up in tight market could constrain growth, but ORCL has shown no hesitation about stealing people from its major customers. probably can sustain 40% plus growth for 2 years.
NC: interesting as an upgrade for the 35 million 3270 terminals. Unclear how long it takes to become an issue for consumers or other commercial use. probably won't stimulate much growth for ORCL for at least two years until y2k is resolved. Note ORCL doesn't sell the hardware.
Net Net: Underlying growth of 30% to 35% probably ok for the next two quarters. growth will decline in the 2 half of 1998, possibly significantly. Institutional investors punish stocks for declines in growth rate, usually they overpunish because they don't know where the declines will stop. i can't call near term trading, but i'd be watching for warning signals starting in march.
Just a note to the folks on the thread, make sure you're looking to the future before taking a long term position.
Trader Dave |
