The Worst is Over For Oracle's App Biz

Oct 10, 2002

Michael Singer

After recent slumps in its application business, Oracle is on the cusp of a major rebound, according to analysts with Deutsche Bank Securities.

The New York-based financial research firm Thursday said while the database market will be weak over the next year; Oracle's competitive position in the enterprise market remains strong.

"We believe the worst is over in the applications business and its market share should now be stable," Deutsche Bank said in a statement to investors. "Apps should remain weak as well, but pull out slightly before database. When spending resumes to a healthier pace, we believe these businesses could grow 5 to 8 percent and 10 to 15 percent, respectively."

Redwood Shores, Calif.-based Oracle's ERP suite boomed as the rush to the Internet picked up steam, however, Deutsche Bank said the high profile problems of the 11i suite caused it to lose significant momentum and credibility.

"We believe that the core components to the 11i suite have been stable for the past 3 to 6 months," Deutsche Bank said. "Customers indicate that 11.5.4 became respectable and 11.5.7 is 'SOLID'. It may take another 2 to 3 quarters before the 11i issues are no longer an issue in sales cycles, though progress is being made."

The jury is also still out on the Oracle's V2 release of its 9iAS.

"After multiple fits and starts, it is critical to the company's success in this segment that it delivers a high quality product in the next 12 to 18 months," Deutsche Bank said.

There are a few other things standing in Oracle's path to app server recovery, say analysts, including the overall IT spending environment, a potential for multiple compression to new, lower levels, back-end loaded business model, the fact that the company's new EVP of Sales started last November and the fact that Larry Ellison is involved in America's Cup sailing. And while customer relations have improved, Deutsche Bank said Oracle continues to anger customers with aggressive pricing tactics.

However, Deutsche Bank said its fieldwork indicates Oracle has the highest customer loyalty of the major database vendors and that close to half of the Informix users are expected to move to Oracle, rather than IBM, over time. DB2's mindshare on UNIX is still well below Oracle's.

Oracle has been fighting to gain a larger piece of the pie in the $1.2 billion application server market, as it has seen its previously unquestioned dominance in its flagship database market is under siege, as Gartner Dataquest's annual survey of database licensing revenue for 2001 showed IBM topping Oracle for the first time. Oracle countered by partnering with Dell Computer to sell its app server.

With IBM and BEA with a firm hold on the large enterprise market, the Oracle9i must compete with Sun Microsystems' Sun One, which is now bundled for free in Sun's Solaris 9 operating system, as well as low-priced offerings from Hewlett-Packard and Microsoft for the mid-market.

According to Gartner Group, the application server market continues to show strength, growing 20 percent in 2001, but its meteoric growth has slowed with a sluggish economy and tight purse strings for IT projects. From 1999 to 2001, the application server market had grown by 92 percent. Gartner expects the market will continue to grow at a steady pace, reaching $3.2 billion by 2006.


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