Lehman's report on Analyst Day Conf, reiterates BUY on ORCL, sets target $53
lehman.com
Highlights:
* Company management's view of 4Q 1999 was cautiously optimistic. The CFO
mentioned that while license revenues are always back-end loaded, "things are
going well".
* The overall tone at the conference was upbeat, particularly with regard to
Oracle's strategic direction and long-term growth. The company continues its
pursuit in developing Web-enabled applications and technologies.
* The demonstration of Customer Relationship Manager (CRM) 3i was impressive
and effective. This feature-laden suite is ready for shipment now.
* Going into FY 2000, Oracle's e-business plan will focus on such high growth
segments as CRM, supply chain management, data warehousing, e-commerce, and
middle market companies.
* Although the Y2K complication remains unpredictable, we believe that the
company is strategically headed in the right direction. If "nuclear Y2K
winter" materializes, then we expect that all enterprise resource planning
vendors, including Oracle, to be casualties. This should then be viewed as a
good buying opportunity. We have kept our model intact and reiterate our
rating and price target.
SUMMARY: The Analyst Day conference kicked off with Oracle's CFO Jeff
Henley. His tone was optimistic, but after last quarter, chose to be
conservative. Although no definitive guidance for this quarter was provided,
management felt that the first 2 months of this quarter were progressing
ahead of what was required, and certainly in better shape than the same time
last quarter. As always, 4Q license revenues were seen to be very back-end
loaded--70% of quarterly revenues typically derived during the last month.
Management suggested that things were going well for license revenues. As we
indicated in our last note, there may be a softening in the consulting
revenues. Henley suggested that perhaps consulting will see a bottoming out
during 4Q 1999 and 1Q 2000, and then pick back up in the 20-25% range during
the rest of FY 2000. Management also indicated that they have been
containing operating expenses for some time now, in light of the anomalous
Y2K environment. Lastly, rumors of a sales force restructuring were said to
be untrue. The company is going to reconfigure its compensation plan so that
there will be no overlap between sales reps on the same account. We believe
that this will be a MAJOR IMPROVEMENT, and we expect much higher incentive
and production levels will result.
As in prior Analyst Day meetings, the company emphasized its long-term vision
and strategic direction in moving solely to the Web browser/server model. As
the market share leader in databases, Oracle has identified growth
opportunities which include e-commerce, data warehousing, and database
options (e.g., systems management, partitioning, Java, Oracle Lite). As the
corporate world moves to the Internet and Intranets, it is expected that the
majority of database revenues will come from the Oracle 8i product.
We expect that consulting revenues will see a slowdown during the next couple
of quarters, as the company transitions from being a major competitor of the
Big 5 systems implementation firms (e.g., Andersen Consulting) to a key
partner. Management believes that this change in mindset is critical in
moving Oracle forward in being a frontrunner in providing Web-enabled
products and driving license revenues.
Lastly, on the applications side, we previewed a demonstration of the newly
released CRM 3i suite. This product is packed with features which integrate
the e-store, customer call center, and mobile device (e.g., Palm Pilot).
Besides this "unified channeling" function, 3i is 100% Internet-based and
provides a 360 degree profile of the customer. We expect that 3i will be a
key driver in generating apps revenues. Besides CRM, Oracle is also
developing products for other high growth areas: supply chain management,
point solutions (e.g., E-Travel), targeted vertical markets and non-English
speaking countries.
We believe that Oracle is a long-term secular story, and well positioned in
its strategy. We have kept our model intact, and reiterate our rating and
price target. |
