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Keen Predictions
Oracle Corp. (ORCL)
by Juliana Tillema
May 21, 1999
Oracle Corp. (ORCL), the well-known provider of database servers in corporate and service provider environments, recently unveiled its Oracle 8i Appliance. The product is an integrated database platform that combines software components and the operating system into one; the Oracle Enterprise Manager provides all system functions and access. The product is sold pre-configured and pre-installed by hardware vendors. Oracle is also planning to release a Linux version of its database software for use on mobile computers.
Meanwhile, Oracle's fourth fiscal quarter ends May 31, and the company has issued caution regarding its ability to convert deals into revenue, the Wall Street Journal reported on May 13. Analysts have reacted across the board by lowering earnings estimates for Oracle but maintaining their positive investment opinions of the company. The stock recently traded at $26 3/8.
Salomon Smith Barney
Analysts at Salomon Smith Barney lowered their fourth-quarter earnings estimate for Oracle to $0.33 from $0.37, but they maintain their BUY recommendation. Salomon Smith Barney attributes likely lower earnings for the quarter to the company being "extremely back end loaded this quarter…as a result of Y2K."
Additionally the analysts lowered their projections for Oracle's growth rate year-over-year to 10% from 12% in the database business, while applications revenue is expected to grow 15% year-over-year, lower than the 25% previously estimated. Further cuts in growth estimates by the analysts can be seen in the consulting and education growth rate, down 4% to 24% and the support growth rate, down 1% to 29%.
The analysts attribute the caution they perceive from the upper management of Oracle to uncertainty about whether deals initiated by the sales force over the year will be closed. Despite the caution being exercised over the immediate quarter, the analysts maintain their target price of $47 and believe that the intermediate and long-term outlook for Oracle is positive.
"We continually hear of increased success in the enterprise applications space. We also understand that customers and potential customers are responding extremely positively to Oracle8i as well as Oracle's overall Internet strategy," the Salomon Smith Barney analysts say.
Dain Rauscher Wessels
Marshall J. Leisten at Dain Rauscher Wessels also maintains a BUY investment opinion of Oracle and lists a price target of $44, after attending the company's Analyst Day in mid-May.
"The main message gleaned from the presentations was that Oracle is the only vendor today that is capable of delivering total business solutions, completely based on the Internet-centric architecture," Leisten says.
Furthermore, the company asserts that it is well positioned in relation to competitors in terms of its ability to offer platform technology, applications and services. Leisten cautions against Oracle becoming too comfortable with this position, however, because he believes the Y2K slowdown may give competitors a chance to catch up to Oracle. He approves of Oracle's goal to demonstrate "strong referenceability by customers before claiming victory."
The major concern expressed at the Analyst Day, says Leisten, was the fact that as of May 1 approximately 70% of the business for the fourth quarter had not yet closed. However, "the company clearly stated it has seen no change in its pipeline dynamics as far as growth and mix of opportunities." Also, Oracle has successfully controlled expenses this quarter, according to Leisten, and further improvements are expected in successive quarters.
Leisten expects Oracle to change in three ways as it heads toward fiscal year 2000. He believes Oracle will have to change its sales strategy from selling exclusively back office applications to CIOs to include front office systems for general managers and other generalists. Also, Oracle needs to make some "cultural refinements" in order to successfully partner with the Big 5 and move away from consulting, which will be necessary as the company moves toward customer centric e-business offerings. And finally, the company is committed to becoming an e-business operation in fiscal year 2000. This means they must move all internal applications to the Internet and reduce the number of distributed databases, Leisten says.
Gruntal & Co.
Analysts at Gruntal & Co. list a 12-month price target of $33 and a BUY investment rating for Oracle after attending the May Analysts Day. They cite Oracle management's strong bullish attitude about long-term competitive prospects for the company and believe Oracle's industry expertise and product breadth will keep the company ahead of the competition. Oracle is one of the few "that can capitalize on the anticipated boom in E-commerce and the adoption of an Internet-centric computing model within the corporate community," the analysts say.
Gruntal revised its fourth fiscal quarter (May) revenue and earnings estimates downward to $2.72 billion and $0.31 from $2.94 billion and $0.34 respectively due to the back-end nature of revenue booking and general malaise in the technology industry.
The impact of potential Y2K problems on customers has created some uncertainty about Oracle's ability to convert prospects into tangible orders, the analysts say. Additionally, they say, "the company is exposed to higher cost structure and lower utilization rates in the consulting organization as the consultants are re-deployed from ERP-[Enterprise Resource Planning] related projects to E-commerce and front-office implementations."
Overall, Oracle is a favored company among Wall Street analysts as the second largest software company in the world and the leading supplier of software products for information management. Despite some minor setbacks this quarter and a new direction for fiscal year 2000, analysts maintain their BUY recommendations on the company. |
