Last Thurs, 12/18 Oracle released its 2nd Quarter 2009 results to a wary and attentive audience. You see, because of Oracle's prominence in the enterprise software market, we all needed to hear "how bad" the economic crisis was hitting the software industry. Without recapping the detailed financials (find those here) basically what we heard was lower than its earlier guidance but above what most people expected. Overall revenues were up, operating margin way above expectations, maintenance up (excluding currency impact) and new software licenses slightly down...if you need more financial analysis there are plenty of other places to find it (try here). Now let's look at what it really means from a market analysis perspective.
First let's just look at this from a historical perspective. I've examined financial trends of the last few economic events and in previous incidents the software market has seen the bottom of it's drop down hit around 3-4 months (1 quarter or more) after "ground zero". Services tends to lag 2 quarters, which makes sense, the services contracts that are executing are not usually pulled, instead often additional phases of a project might be put on hold or new work could fall off. Anyway, if this trend holds true, and we use Sept 2008 as ground zero (Lehman Bros failure) then we should see the bottom of the slide down around December - Jan 2009. But there's another factor to consider, its the end of the year (or quarter) for many companies, which often results in a rush to spend budgets. We seem to be seeing that this month and so the market may see a flat slide that moves the bottom of the downward trend to Jan - Feb.
In the 2001 bubble collapse crisis, Oracle held up fairly well. In the current situation, Oracle is even better placed than 2002 to survive in the economic crisis in many ways. they offer a broad portfolio of products, including many industry vertical focused applications, middleware and database (not to mention the new Database machine), so they can shift focus internally to areas of software and verticals that have a higher probability of growth, and de-emphasize areas that are hit the hardest. The also have a much larger maintenance base now due to all the acquisitions, which not only offers financial stability but also is a fertile market for cross sell / up sell tactics. Out of all the enterprise apps vendors, Oracle seems the best set up to deal with this crisis.
The other interesting observation from the Oracle call are the three major areas that were highlighted: 1. the growing pipeline for the new Database "Machine" (they sold the 1st one in the quarter), 2. the strength and growth in the middleware market (they claim to be as large or perhaps larger than IBM now in middleware) and 3. key wins of the Oracle CRM On Demand offering against Salesforce.com. For me this is a critical shift in strategy as Oracle has historically been fairly quiet on SaaS and their on demand business. I suspect that they are now being aggressive in pursuing the SaaS business and will announce some new offerings as next year plays out. As I said before, I believe SaaS provides one of the more obvious opportunities during the down economy (see my post here) and now it looks like Oracle plans to take advantage of that opportunity.
