Oracle?s chief financial officer Jeff Henley has written to investors, assuring them that the company?s recent crisis on the stock market is purely temporary and that things will get better.
Last month the database supplier shocked Wall Street when it reported second quarter profits of $182 million, below analyst expectations. The news, plus the admission that the company was hit by the Asian economic crisis, sent Oracle?s stock price plummeting, with over one-third knocked off its value in one day.
In his letter, Henley sets out to calm investor jitters, both those related directly to Oracle and those concerning lack of confidence in the database sector as a whole.
"Customers need to understand that the database market isn't dead just like it wasn't dead in 1990-91," he insists. "I remember coming into Oracle in early 1991 and hearing many people tell me that the database market was mature. I think we have a lot of opportunities, just like I thought we did then. Also, we are more clearly the database leader now than in 1990; even on NT we now enjoy number one market share."
He continues: "Our biggest problems have been that we haven't always single-mindedly focused on our applications business like a pure applications company and we have several spotty quarters which our competitors have used to confuse the outside market whenever they can."
Henley cites two reasons for the falling stock price. "Investors don't like surprises and punish stocks when they miss Wall Street expectations," he writes. "Second, investors are concerned that licence growth for the past two quarters has slowed down and that this suggests far slower long term growth than they anticipated."
He adds that technology stocks have what he calls a "high beta," or volatility index, which means that price movements are far greater and occur more frequently than in most other industries.
"One only has to look at the highs and lows in calendar year 1997 to see what I mean when it was not uncommon for stock prices of high quality companies to move within more than 50 per cent ranges," he explains, citing Sun Microsystems, Cisco and Intel as examples.
Inevitably the Oracle stock crisis has provoked class action securities suits, but Henley is defiant about facing them down. "You should all know that we believe their allegations are false, and that we don't intend to settle with these guys," he said, "If they care to go to court then so be it - we're confident they will lose."
Henley attempts to demonstrate continued consumer confidence in Oracle by citing a buying intentions study from the Soundview/Gartner research group. The research questioned end users on where they intended to buy more products, and Oracle was the third most named vendor, with Microsoft and Cisco in first and second.
Oracle is, he argues, a company in transition following the release last year of Oracle 8. "It will take 12-18 months for a lot of customers to upgrade to Oracle 8, plus it takes new customers significant time to implement new purchases," he says.
"Everything we know says Oracle 8 is more solid than 7 was at the same time (roughly six months from introduction), so that over the coming months we will have a powerful platform to 'upsell' new options such as partitioning, parallel server, objects, Java, which should generate a lot of new revenue."
But Henley is forced to admit that the company is not faring well in the applications software business, cited in recent years as a critical growth area for the company. Conceding that Oracle does not have a prominent market position, he adds that rival suppliers are growing more consistently that Oracle is.
But the picture is not totally gloomy even here, he insists, citing 96 per cent growth in Q1 1998 against four per cent the year earlier. "If you look back over the last three calendar years we have grown two times faster than SAP in constant dollars on an annual total revenue basis and over 1.5 times faster on a licence-only basis, despite the fact that we've had several slow growth quarters during that three-year period."
As for other rivals, he adds: "In the case of Peoplesoft, they grew faster than we did in our Q2, but in the previous two quarters, Oracle's total applications revenue grew faster than theirs did in the comparable quarters, so one quarter's growth rate is not truly reflective of a long term trend."
Investors were divided in their reaction to the letter. One recipient found it to be bland, while another commented: "It seems Henley is aware of the problem from a share holders point of view. I wonder what Larry [Elliison] has to say. Sure would be nice to hear something from the horses mouth - not the other end as we have at times..."
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