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Technology Stocks : Oracle Corporation (ORCL) -- Ignore unavailable to you. Want to Upgrade?

To: JackC2 who wrote (14231)	7/24/2000 11:10:39 PM
From: alydar	Read Replies (1) \| Respond to of 19080

<<One more interesting piece>> Since we all know that a little crystal ball-gazing is a technology investor's most satisfying pastime, Chuck's peek ahead is as provocative as catnip: I can't resist the temptation to wade in with a few SWAGs of my own. Before I do though, I'd like to pick up with Chuck's proposed frame of reference in 1990. What might we have known as Oracle investors that year? First, the company recorded $916 million in revenues during Fiscal 1990, most of which were generated by sales of database software and development tools. This represented year-over-year top line growth of nearly 62% and came on the heels of several years of successive doubles. Oracle was already an exciting stock for investors. In FY1990, the company recorded its largest single sale to date, a contract with Boeing for about $17 million. We were clearly across the Geoffrian "Chasm" and riding the Tornado (although nobody knew enough yet to describe hypergrowth that way). On the technology front, Oracle Version 6, optimized for demanding OLTP applications, was finally shipping and all indicators showed clear sailing ahead. We couldn't hire talented employees fast enough. But beneath the surface lay a jagged reef. Entering its fourth quarter of FY90, Oracle hit the proverbial wall. Nobody knew it then, but a split-adjusted share of Oracle stock purchased on March 19, 1990 would lose more than 80 percent of its value before year-end and take nearly three years to recover. Observant investors couldn't help but think that the bloom was off the rose. In FY91, revenue growth slowed abruptly, amounting to just 12% over 1990 results. FY92 was little better. At its nadir, a testicular investor could have had the billion-dollar software giant for about 25 cents a share, split adjusted, and the smart money would almost certainly have called him a fool. So, if nothing else, prognosticating ten years out is virtually always an exercise in humility. Undaunted by that, here are my guesses as to what the next decade holds: First, Oracle will continue to flourish during the build-out of the ASP evolution of Computing. As Ron's model illustrated over the weekend, it's hard to find any other single-source supplier for all the goodies a company needs to move its applications to the internet. As this phase matures, lots of interesting product portfolio line-extensions will suggest themselves and we will continue our debate over Larry's eternal fascination with stuff that we can't forecast. Oracle will discover the importance of qualitative data management capabilities, for instance, and Larry will suddenly conclude that Pehong Chen (BVSN) is his one best rival. Second, the business model driving enterprise software investments will evolve very quickly during this build-out phase, as Co-Location hosting schemes yield to Managed-Server schemes and the identities of end-consuming software licensees blur. Larry will again appear to be a prophet, resurrecting a millage-based licensing idea he first advanced in 1988. Database customers will pay by the row or object served and monthly services billings will eclipse today's large license fee sales. Oracle will find itself atop a new utility industry based upon timely distribution of information. If they're clever, they'll master the mechanics of very granular transaction billing, perhaps even buying a financial intermediary like a credit card company to acquire that specific expertise. Companies like Exodus and whatever remains of the Telcos will become Oracle's primary distribution channels. (This scheme will completely undermine the value basis of separate application software products. As soon as customers understand that the chief utility of a business solution is its seamless incorporation of supporting data and processes, they won't go back to integrating discrete components that require capital investments or large up-front expenses. Price a solution according to its real utility and the market will beat a path to it.) For a long while, investors and analysts won't know what to make of the resulting revenue model. During the transition, Oracle may even be seen to "miss" quarters as the revenue hockey stick levels out. Third, as Oracle evolves to become a great data utility, it will resemble less and less the software company that we know today. As the xSP era matures, Oracle may indeed enter the mop-up phase of the standard behavior model and have more invested in meeting the needs of Laggards than Early Adopters. New metrics will be necessary to gauge its performance as a business. It will risk losing its allure as a place where innovators can create exciting new products or drive significant business transactions. The company's capital structure will optimally reward extensions of its franchise in "the Borg" over disruptive new businesses and, if it's smart, the Oracle of ten years hence will spin-off lots of interesting companies as it grows. It will know full-well that creative threats will first appear as discontinuous innovations in its main business providing access to rows and objects cheaply. It will also know that the companies that will present those threats haven't been founded yet and may very well be a-borning in the minds of current Oracle employees. It will learn to assure that the next generation of SEBLs, et. al., are benefits to loyal Oracle shareholders, rather than irritants. Finally, I feel pretty confident in saying that whatever we regard today as an illustration of uncomprehensibly massive scale in an information system will appear supremely naive in 2010. And in the department of wild-ass guesses, we'll all still be prescient. Bob Sutton