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Oracle posts earnings growth, jabs chief rival SAP

REDWOOD SHORES, CA--Oracle CEO Larry Ellison says that his company’s assimilation of PeopleSoft is on schedule, and he expects the assets of the former competitor to accelerate Oracle’s earnings growth for both 2005 and 2006.

Speaking in New York at the company’s first financial analyst meeting since completing the $10.3 billion takeover earlier this month, Ellison also reaffirmed Oracle’s plan to compete with Germany’s SAP, which currently dominates the business applications software market.

A week earlier, SAP threw down a gauntlet of sorts with the announcement that it had acquired Texas-based TomorrowNow, which specializes in low-cost maintenance and support for PeopleSoft and J.D. Edwards. Through its new “Safe Passage” program, SAP is offering PeopleSoft and JDE users special deals to migrate to SAP software, including the NetWeaver platform, which includes connectors for JDE and PeopleSoft solutions.

“We’d love to get in a technology battle with SAP,” Ellison said. “We think our database and application server aren’t even in the same weight class as NetWeaver. It’s not a fair fight.”

Or a fair comparison, says META Group analyst David Yockelson. “NetWeaver should be compared against the Oracle Application Server AND Collaboration Suite AND a composite application framework of some sort, with the assumption that all the pieces would be well integrated,” Yockelson says. “Purely at the application-server level, I’d give the nod to Oracle. But in terms of combining a broad set of features and providing them as services easily consumable by the applications--and able to be built into future composites--I’d give SAP the early nod.”

“It’s also worth noting that the two vendors approach [things] from opposite sides: SAP, from the top down, with a focus on the business process; Oracle, from the bottom up, with a focus on data/information management,” Yockelson adds. “SAP will offer some facilities that compete somewhat at a data level with Oracle...but Oracle does have a convincing story with its data hubs and associated Oracle Information Architecture. Certainly, Oracle will be dealing with a stronger deck than it has in the past.”

Ellison emphasized that his company would compete with its larger rival in selected markets only. “We wouldn’t dream of competing with SAP in auto-manufacturing applications or energy applications,” he said. “We won’t go out and bang our heads against the wall. But we don’t think they can compete with us in banking.”

Forrester Research analyst Paul Hamerman expects to see Oracle continue to focus on markets in which it is likely to succeed. "Oracle is very strong in the service-oriented market, where it can sell applications around HR and financial management, as well as government, especially in North America," he says. "SAP has much more depth and maturity in some of the ERP and supply-chain applications used by manufacturers and aerospace defense—capital-intensive industries. Those are markets in which Oracle will not compete as aggressively with SAP, because SAP tends to win those kinds of ERP deals."

In what might be seen as a repeat of last week’s tit-for-tat announcement (SAP’s Safe Passage news surfaced just hours after Oracle had outlined for reporters its plans for integrating PeopleSoft), SAP announced that it plans to hire 3,000 employees this year, a move aimed at increasing license revenues by 10 to 12 percent this year. Werner Brandt, the German company’s CFO, promised that 2005 would be “a year of investment for SAP, which will help to drive growth.”

Oracle has begun laying off 5,000 employees as part of the merger--a move applauded by Wall Street--but the company says it plans to keep a large part of PeopleSoft’s software development and support staff.

Ellison said that Oracle expects a profit per share of 76 to 80 cents on revenue of $14.1 billion to $14.5 billion in its fiscal 2006, which begins in June. Wall Street projections are a bit more conservative at 70 cents per share on revenue of $12.8 billion.

For its part, SAP posted fourth-quarter net income of $708 million, up from $548 million in the same quarter last year. Its software revenue for 2004 increased 10 percent to $3.2 billion. SAP expects its growth to increase to as much as 12 percent in 2005.

About the Author

John K. Waters is a freelance writer based in Silicon Valley. He can be reached at john@watersworks.com.

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