With all of Oracle's challenges well known, analysts are questioning the logic behind pegging the quarter's problems to Asia. Oracle's Asia revenue runs about half the level of Europe, which is about half of sales in Americas, the company's biggest geographic market. In Oracle's fiscal second quarter, the company's Asia revenue was $346m, up from $340m in the first quarter. In the first three quarters of 2001, Oracle's Asia revenue ranged from $327.4m to $350m. In Oracle's fourth quarter, traditionally the largest for the company, revenue from Asia was $423m. Simply put, Oracle's Asia business is notable, but analysts say it's hardly the only thing to worry about. First Call is projecting Oracle to report earnings of 9 cents a share on sales of $2.42bn. "There had to be softness elsewhere as well," said Terilyn Palanca, a database analyst at Giga Information Group. According to Palanca's checks, Oracle did cut prices in Japan during the quarter, indicating "the company had to jump-start that specific area, but it's indicative of the database market -- it's global." Jim Mendelson, an analyst at SoundView Technology, said Asia may have been weak, but revenue in the Americas and Europe must have been off as well. "From our vantage point, there are signs that February sales may not have been as robust as January's," Mendelson said. Analysts said Asia may have been singled out because it's harder to do channel checks in the Far East, compared with the US and Europe. In many respects, analysts have to take the company's word when it comes to checking up on Oracle's Asia business. "It's tough to fully understand what's going on there," said Chappell, adding "we don't do many channel checks in Hong Kong." More likely, however, blaming Asia may keep the blustery Ellison from addressing the company's execution issues: Specifically, Oracle being out-priced on databases and outmaneuvered on applications. "It's not like we're going to hear that," DiBona said. Bugs and bills
While acknowledging IT spending is weak, analysts said they would like to hear how the company is progressing on the applications front and planning to defend its core database business. Analysts across the board noted that Oracle's customers are reluctant to upgrade their software. Carl Olofson, an analyst at IDC, said Oracle's current problems look similar to stumbles from previous years when Oracle customers were slow to upgrade. "To some extent they are victims of their own success," he said. "Oracle is dependent on its existing customers." Chappell said he now expects Oracle's software revenue to be in the $775m to $825m range, compared with his previous estimate of $907m. "There's just a lack of urgency to upgrade," he said. While a weak economy has cut the enthusiasm for upgrades, Oracle has also alienated customers with bugs and new software licensing policies, analysts said. Peter Osbourne, group manager of advanced technology at Dollar Rent A Car, said his company has held back on upgrading from Oracle 8i to 9i largely because the last update was painful. "We were burned on 8i, so we're waiting for the latest version of 9i," he said. He said he's been well aware of Oracle's hard press on pricing, noting that the company is "notorious for not negotiating." Dollar's Web site runs on Microsoft's SQL Server and the company is considering other uses for Microsoft's databases. "With Oracle every new feature is an additional charge," he said. "With Microsoft the reply is 'it's in there.'" Mendelson said he expects Oracle's database business to "look relatively OK," but notes that customers have held back on upgrading to 11i. "It's a strong architecture, but it still has a lot of bugs," he said. "A lot has been resolved, but it's still buggy." Byron Miller, Giga's applications analyst, said Oracle has fixed many of the bugs, but customers are still waiting for the proof. He said one Oracle customer started to upgrade, ran into trouble, investigated, and eventually decided to continue but with caution. "It doesn't sound all clear," he said. Laura Lederman, an analyst with William Blair, said Oracle's 11i business looked like it was gaining because inquiries were going up, but customers have put off purchases. "Some customers might be waiting until Oracle's fourth fiscal quarter (May) to purchase products in order to receive a better price," she said. "We know specifically of one large manufacturing deal that falls into this category." According to Lederman's informal survey of consultants, customers are waiting for newer, less buggy, versions of 11i although she notes the "CRM and process manufacturing modules apparently still have issues." It's possible that Oracle customers may put off upgrades for at least six months. That's bad news for Oracle considering the company's latest database hasn't hit its stride yet either, said Lederman. More bad news for Oracle is that customers are pushing back on Oracle's new licensing scheme, analysts said. Palanca said Oracle has been in contract negotiations with a lot of its long-term customers and has even resorted to auditing selected database users. "They are not making concessions to long-term customers and trying to get them to buy again," she said. Miller has also received similar feedback from Oracle customers in Europe. In regulatory filings, Oracle warned about price pressure from the competition as well as its new licensing terms. "Changes in customer use of the company's products could also result in lower license revenues if the company's pricing model is not adapted to such usage," Oracle said. Looking ahead
Oracle surely has challenges, but it's premature to write off the company, Olofson said. According to Olofson, Oracle had similar problems throughout the late 1990s when it was trying to convince customers to upgrade their databases and applications. Analysts also expect a strong fourth quarter, relative to the third. Oracle typically shows strong results in the fourth quarter, but analysts are mixed on projecting Ellison & Co.'s outlook. "The fourth quarter is always sequentially higher, but we'll have to see how they adjust their numbers," DiBona said. "IT spending may not come back until the back-end of the year." Following the company's profit warning, analysts also tweaked their fourth-quarter estimates. Oracle is expected to report earnings of 14 cents a share in the fourth quarter, according to current First Call projections. Lederman also said the company's business isn't likely to roar back, but slowly improve, largely because "Oracle is a big ship to turn."
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