It appears that Larry Ellison took to the stage last week with more drama in mind than he had the right to perform. Oracle (NASDAQ:ORCL) really did produce a strong quarter, but the CEO may have been speaking with feet of clay when he came out strongly in regard to rival enterprise-software developer SAP (NYSE:SAP). An SAP representative took the time to give me his company's side of the story, to which I've added my own Foolish touch.
William Wohl, VP of SAP's global communications, took issue with three main points in Ellison's earnings report: Oracle's organic growth figures (particularly the contribution from newly acquired Siebel Systems), the assertion that SAP is late to deliver its service-oriented architecture (SOA) solution, and Ellison's statement about SAP changing its business strategy because of pressure from Oracle. Let's deal with each of these points in turn.
Growth ... or no growth?
Oracle reported an 80% jump in application license revenues year over year, to a total of $228 million for the quarter. Excluding the acquisitions of i-flex, Siebel, and Portal during the year, the company claimed 47% organic growth. That assumes a revenue contribution of $31 million from Siebel, $8.7 million from i-flex, and $2.3 million from Portal.
When Siebel was an independent company, it regularly produced license revenues of more than $100 million per quarter. But let's be charitable to Oracle and call Siebel's realistic contribution something like $75 million this quarter. That equals the take from the March-ending quarter in 2005, which in turn was the worst license revenue performance for Siebel since September 1998. It's also close to the midpoint between Oracle's stated $31 million figure and the year-ago quarter's $112 million.
So assuming that the other acquired revenues are close enough that it doesn't matter, pro forma applications license revenues landed at about $142 million this time, which means 12% organic growth over the year-ago quarter. That's nice, but it's a far cry from the stated 47% figure. I'd call this a best-case realistic scenario for Oracle, and some analysts arrive at organic growth as low as 3%. Feel free to do your own math.
Who's late?
Regarding SAP's purported late arrival at the SOA party, Ellison seems to have spun an SAP press release to fit his own needs. The company said it will not release a new application suite until 2010 and is canceling the planned release of mySAP 2007 in favor of working on incremental updates to mySAP 2005 for the next few years.
But the 2005 version supports SOA today, and people have written books on how to work with it. And SAP says the decision to drop the 2007 version was made to ensure a "stable business process platform for enterprise service-oriented architecture innovation for the next five years." Customers don't like forced upgrades every couple of years, so SAP is going the lower-impact route here.
That addresses the last two points at once, actually. Oracle's Fusion SOA application is still under development, so it looks as though Oracle may be the Johnny-come-lately at this party after all.
The Foolish conclusion
If this altercation teaches us anything, it would be that it's dangerous to take anything anybody says at face value, unless that person can back it up with solid data. It's another reminder of the importance of full disclosure and truthfulness in financial statement reports, and of the malleability of line items like sales contributions from acquired operations. In other words: Do your due diligence, Fool. That way, you can rest easily if your own checkups lead you to buy shares of Oracle, SAP, or even both.
Further Foolishness:
- Read up on the earnings report that started it all.
- Get the numbers behind the story.
- You can even reconcile them with expectations.
- We can help you find the next Oracle.
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Fool contributor Anders Bylund holds no position in either one of the companies discussed here. You can check out Anders' holdings if you like. Foolish disclosure is always on the up-and-up.
