This may explain things:
12/16 15:03 Database software companies face
bleak 1998
By Kourosh Karimkhany
PALO ALTO, Calif. (Reuters) - The database software industry, long a
lucrative field for investors, will face a tough year in 1998.
Each of the top three database vendors -- Oracle Corp., Sybase Inc. and
Informix Corp. -- has to recover from management or financial missteps in the
past few months.
The $5 billion industry also faces a potential price war. Microsoft Corp. is
selling databases that cost a fraction of traditional offerings. To stay
competitive, the database vendors will have to get used to smaller profit
margins.
Worst of all, every customer that would need database software seems to
already have a copy. Analysts say there are not enough new customers to fuel
the fantastic growth rates of just a year ago.
''One has to conclude that the outlook will be mixed,'' said Andrew Roskill,
analyst at Salomon Smith Barney.
Until recently, the database companies had been the surest investment bets in
software after Microsoft. High-end databases -- which cost from several
thousand to millions of dollars -- have been at the top of corporate shopping
lists for years.
These computer programs store libraries of valuable business information, like
customer names and inventory lists, in corporate networks. Because databases
make it easy to sift through data, companies use them to cut costs, find new
potential customers, get a better picture of their operations and speed up
product development.
In the mid-1990s, the revenues of Oracle, Sybase and Informix each jumped
more than 50 percent each year. Investors had come to expect these fantastic
rates quarter after quarter.
That's why Oracle's stock plunged 29 percent and set a trading volume record
earlier this month when it reported revenue growth that was far below Wall
Street projections.
Oracle blamed the Asian economic crisis for much of its slowdown. But
analysts saw signs that Oracle's troubles went beyond Asia.
Revenue from sales of database ''servers'' -- the primary component of a
database system and Oracle's bread-and-butter business -- rose a meager 3
percent. That's down from growth rates of 30 percent to 40 percent in recent
quarters.
It could mean that customers do not need any more database copies, or
''licenses,'' industry executives said.
For years, the database vendors had been offering huge discounts to customers
who bought several licenses at once, said Mitchell Kertzman, Sybase chief
executive.
''But sooner or later, you saturate your own customer base,'' Kertzman said. It
could take a while for customers to use up all those unused licenses.
On top of that, falling prices for Internet computer connections is allowing
companies to buy fewer databases. Branch offices now can tap cheaply into
the headquarter's central database instead of having a copy in the local office.
Richard Finkelstein, president of Performance Computing Inc., helps big
companies buy and install database systems. He said one of his clients bought
more than 700 licenses for Oracle databases, one license for each of its branch
operations.
The client never finished deploying all of the databases, and will not need any
more licenses for some time, he said.
''There's less need for databases going forward,'' Finkelstein said.
Then there is the competition from Microsoft.
Offerings from Oracle, Informix and Sybase are sophisticated enough to run
airline ticket systems, telephone networks and Federal Express's package
tracking system. They also come with impressive price tags.
Two years ago, Microsoft began selling database software of its own, aiming
at small to mid-sized companies. Its software cannot yet compete with Oracle,
Sybase and Informix. But it sells for a fraction of the price. To expand into
new markets, the database vendors will have to slash prices to compete,
analysts said.
''Microsoft is well on its way to commoditizing this category,'' said Don
DePalma, principal analyst at market researcher Forrester Research. ''Even
higher in the food chain, the prices will drop.''
To be sure, database companies still have bright long-term prospects, analysts
said. By some estimates, only 20 percent of the world's business information is
stored in a database. But it could take at least a year for the database companies
to adjust to shifting markets.
^REUTERS@ Reut15:04 12-16-97
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