Dec 29, 1997 Oracle: Is the Revelation a Smokscreen?
On December 9, 1997, Oracle Corp, the Redwood Shores, Calif.-based software company, reported dismal second quarter earnings. The company reported
revenues of $1.6 billion, a 23 percent increase over the year-ago period, but earnings came in 17 percent below estimates, at $187 million, or just 4.5 percent
better than the second quarter of last year. What's more disturbing, though, is that some of Oracle's core businesses slowed dramatically. Revenues for its database
business, for example, grew at an anemic 3 percent; worse, revenues for its corporate applications business rose only 7 percent -- down from 96 percent growth
just a quarter earlier. The market responded unfavorably to the shortfall, whacking 29 percent from Oracle's share price.
Oracle (NASDAQ:ORCL - news) officials cited Asia, and to a lesser extent other areas of the world, for the company's earnings decline. A strong dollar,
meanwhile, was also used as an excuse to justify weaker revenue growth. According to Jeffrey Henley, executive vice president, revenues grew 15 percent in local
Asian currencies, but just one percent in dollars.
Still, since Oracle derives only 15 percent of its business from Asia, some wonder if Larry Ellison, founder and CEO of Oracle, has paid too much attention to
fringe areas of the company -- its fledgling network computer (NC) business, for example -- and taken his eye off the database business that got the company to
where it is today, the number two software company in the world. In other words, as Ellison has toured the U.S. promoting his NC, and earlier this year even
entertained ideas of buying the struggling Apple Computer Co., has the shop been left to run itself?
Some also wonder if Ellison's vision of an NC in every home -- just like a chicken in every pot -- will eventually pan out. And even if it does, will the time and
energy be worth it for Oracle? If the first NC to hit the market -- the one made by RCA -- is any indication, NCs could have a tough road ahead. RCA's NC is
nothing more than an underpowered, underfeatured version of WebTV. Like WebTV, the RCA NC performs e-mail, chat, and news retrieval functions. The RCA
entry also comes with a built-in printer, a set-top box, and a wireless keyboard. For $249, or about a third of the price of those hot-selling low-end PCs, you can
be surfing the Web. That's the good news.
The bad news is that NCs have little power. There is no hard drive to store letters, statistics, or other features that low-end PCs offer. So while you may be
watching Monday Night Football with your new NC, you won't be able to call up any statistics on your favorite players. You can't do two things at once with this
device. And even if you could, this device employs the worst method possible for delivering the Internet: The telephone line.
The NC, then, is a barebones unit that -- at this point anyway -- will appeal to computer neophytes who don't know better, and to low-income users who can't
afford to shell out $999 for a Pentium 180 mhz PC.
The catch-22 for NC makers is that to compete with box makers, more features and power may be necessary to gain widespread acceptance. Of course, that
would also mean bumping up the price of the now low-cost NC. Oracle itself says that $500 is a more realistic price for NCs. Yet, as time goes on, those PCs that
are currently selling for $999 will continue to come down in price -- shrinking one of the NC's biggest advantages.
In good time Oracle and its investors will find out if the chest-pounding, full-speed-ahead attitude of Ellison is warranted for the NC. Investors, in the interim, will
have to figure out how much of Oracle's problems are attributable to Asia -- problems could loom until the end of 1998, according to Oracle -- and how much is
the result of a plan to become the biggest NC maker in the world. In the meantime, however, there's still that little problem with earnings derived from its software
business -- earnings that were growing by more than 30 percent a year, to little more than mid-single digits this time around.
V.K |
