Oracle is in for serious difficulty
Is Oracle, the world’s third-largest software maker, in for difficult times? This may seem a strange question to ask as it has being growing for the past five years; with 2011 showing revenue of $35.6 B (up 33% from $26.8 B) and net income of $8.5B (up 39% from $6.1B). However these figures came on the back of missed Q4 earnings estimates, the first time this has happened in a decade and looking ahead I predict Oracles growth trend to end and a period of difficulty to begin caused by two separate sources.
Oracle established itself in 1977 as a maker of database software and despite many acquisitions and new directions in the years since, that still remains their core business and are currently the world’s biggest maker of database software. However recently this position has been slipping and Oracle’s highly touted new generation of business management software, released in 2011 after years of delays in development, has been slow to take off in a period when its main rivals SAP, IBM, Salesforce and VMware have seen strong results.
The most prominent of these rivals is SAP, the world’s biggest maker of business management software with Oracle in second place. SAP strengthened this position in 2011 where it saw revenue of 14.6€ B (up 17% from 12.5€ B) and net income of 3.4€ B (up 89% from 1.8€ B). This growth was lead by its successful new Hana software which generated 160 million euros ($208 million) in sales in its first two quarters on the market, ahead of SAP’s target of 100 million euros.
More recently SAP has revealed that it is tweaking Hana so it can be used to hold data for business management applications that handle corporate accounting, human resources and procurement software, using technology it acquired in the acquisition of Sybase, the world’s No. 4 maker of database software. This is a major concern for Oracle as SAP is its largest reseller, as it runs the bulk of SAP applications run on Oracle database software.
SAP’s CTO Vishal Sikka has revealed that they will start selling a version of Hana that will serve as a database for SAP’s core suite of business management software by the end of this year, full details of which will be disclose at an April 10 news conference. If Hana takes off it could have a major impact on Oracle’s turnover and in times like these Oracle needs to be strengthening its business relationships, not damaging them.
Oracle’s position as the world’s biggest maker of database software has primarily been achieved on the strength of its key relationships. In recent years however it has badly these relationships in numerous ways.
In 2010 Oracle decided it wanted to move into hardware and acquired Sun Microsystems for $5.6 billion. Since then this acquisition has turned into a problem for Oracle as firstly Sun’s sales have fallen every quarter since being purchased but it also strained relationships and put it in direct competition with hardware makers like HP, Dell and IBM who have long been some of the biggest resellers of his database programs and other products.
Additionally Larry Ellison has personally exasperated matters in sparking a bitter feud between Oracle and HP. This feud started In August 2010 when Ellison decided to publicly support Mark Hurd, HP’s then CEO. When Mark Hurd, abruptly resigned in disgrace amid a sexual harassment scandal Ellison displayed questionable moral and business judgement by publicly criticising HP’s board in calling them “cowardly” in how they handled the matter and then by hiring Hurd. Since then relationships between the two companies so severely deteriorated that both companies have since filed lawsuits against each other over trivial matters.
HP is not the only company Oracle has problems with and currently it’s in the middle of separate intellectual property lawsuits with both Google and SAP. That a company like Oracle could create so many problems with so many companies shows a clear lack of intelligence and leadership among its board and doesn’t bode well for its future.