- Open source databases: the 97-pound weakling
- Salesforce.com for sale?
- Has open source sold out?
- Not too late to make small profit on BEA sale
- Oracle Blows Away Expectations
- Analysts predict IT squeeze
- The Legion of the Disappeared or Where Has All the Software Gone?
- Don't Get Caught in the Stampede
- Oracle's Worst Case Not So Bad
- Oracle and BEA Play Chicken
April 03, 2008 | Comments: (0)
Open source databases: the 97-pound weakling
Linux, Apache, JBoss, and other open source technologies are kicking sand in the faces of the big boys on the operating system and middleware tiers, but when it comes to the database world, open source is still a 97-pound weakling. And despite some heady growth numbers, that's not likely to change anytime soon.
One big reason: Tool vendors have yet to catch up. "We advise clients that unless they have very strong IT resources, they should wait at least two years to think about deploying an open source database for mission-critical applications," says Colleen Graham, Gartner's longtime database market analyst.
Don't take Graham's words as a put-down of the products. They're not. But Ingres, MySQL, and EnterpriseDB are victims of a classic chicken-and-egg phenomenon. Tool vendors, unlike the database developers, tend to work on a commercial model, and until they see open source winning more database market share, they don't have the incentive to supply the software and enterprise needs for disaster recovery and other essential functions.
Even fast growth won't easily overcome the tiny installed base
As a result, open source database penetration is very low; Gartner estimates that it has a market share of about 1 percent. Sure, it's growing rapidly, but even after an annual growth of 43 percent a year for the next four years, it will still have a share of only 5 percent or so, says Graham.
Consider Ingres, which spun out of CA in 2005. Revenue doubled in 2007, but even so, the top line was a paltry $50 million. MySQL, purchased by Sun this year for a heady $1 billion, recorded revenue of just $48 million in 2007, according to analysts at the 451 Group.
Fred Gallagher, vice president of business development at Ingres, says his company is making progress winning customers for mission-critical applications, and points to DatAllegro, which embeds Ingres in its data warehousing appliance.
Larger companies simply aren't biting
A recent joint survey by the 451 Group and ChangeWave Research shows a good deal of resistance by executives responsible for database procurement. It found that just 8 percent of all respondents are planning a moderate or significant increase in open source database adoption.
But you can't blame any cooling of the open source phenomenon for the weak traction of open source databases. Open source on the operating system, for example, sees continued gains: Linux was the No. 3 relational database OS with 15.5 percent market share in 2006, when it grew by 67 percent over the previous year, Gartner found. (Stats for 2007 won't be ready for another few months.)
It also would be tempting to blame the anemic numbers on the faltering economy, but 41 percent of those polled (and remember that these are procurement executives) expect to increase spending on proprietary database deployments.
It's also clear that adoption of open source databases is wide but mighty shallow. "A look at the typical workload deployments for open source databases confirms this. Open source databases are most likely to be used for small database applications, and 34 percent of respondents stated that their largest open source database stored less than 50GB of data," the analysts wrote.
50GB? My iPod holds a lot more than that.
Meanwhile, express products by Oracle and IBM may well pose a threat to open source. The 451 Group survey found that adoption of express databases is strong in the enterprise -- Oracle Express has an adoption rate of 13 percent among businesses with more than 1,000 employees -- but much weaker in smaller businesses.
"One way to read this is that the Express and open source products do not compete directly, since Express products are more likely to be deployed by larger enterprises and open source products by smaller enterprises. Another way to read this is that in fact the adoption of Express databases by larger customers has been at the expense of open source databases," said the 451 Group.
The investors show they believe in the potential
Before anyone relegates open source databases to technology's dustbin, it's worth remembering that despite all of the Silicon Valley nonsense about "The Art of War," a successful business does not have to annihilate the enemy. What it has to do is make money.
It's not clear, for example, if Ingres is profitable yet, but with top-line growth of 100 percent, it may well be headed in that direction. Similarly, now that MySQL has the marketing muscle of Sun behind it, it could well do much better than it did as a stand-alone.
Indeed, venture capitalists, who have a very unsentimental view of the world, are pouring money into open source ventures at a record rate. VCs sent $204 million into open source during the first quarter of this year, more than double the VC funding that went into open source companies during the same period a year ago, according to the 451 Group.
Last week, EnterpriseDB announced that it had closed a $10 million round of venture capital financing with IBM, Charles River Ventures, Fidelity Ventures, and Valhalla Partners.
That's heartening news. But don't expect the open source guys to kick sand in Larry Ellison's face anytime soon.
I welcome your comments, tips and suggestions. Reach me at bill_snyder@infoworld.com.
Posted by Bill Snyder on April 3, 2008 03:00 AM
February 11, 2008 | Comments: (0)
Interesting rumor making the rounds this morning that Salesforce.com has approached Oracle and offered to sell itself for $75 a share. Wall Street is paying attention; shares of Salesforce.com have been trading as high as $10 a share above Monday’s opening price. If true the offer would be a huge premium over Friday’s closing price of $50.87 a share.
The rumor apparently started with a blog posting by Tom Foremski on his Silicon Valley Watcher Site. Foremski, a former reporter at the Financial Times and a reputable guy, attributes his scoop to a “reliable source.”
No way to know if Foremski’s source is accurate, but even if he or she is, I’d be surprised if Oracle is really interested. In a quick note this morning, Cowen analyst Peter Goldmacher, who has followed both companies closely for some time, says “While we would not be surprised if [Salesforce.com] made such an overture, we would be very surprised if Oracle didn’t laugh them out of the building.”
Goldmacher notes that the deal would start by knocking a full point off Oracle’s margins and would take Oracle way down market (that is, to smaller customers) an opportunity the company has repeatedly said it has no interest in. It’s also worth noting that most Oracle acquisitions have been very bottom-line-oriented. That’s because most of the targets have had large streams of recurring maintenance revenue, which helps margins and earnings. Salesforce.com’s software as a service model is completely different.
To be candid, I was wrong about Oracle and BEA Systems. So maybe I’m misreading this one as well. But for now, I’d remain very skeptical.
I welcome your comments, tips and suggestions. Reach me at bill_snyder@infoworld.com
Posted by Bill Snyder on February 11, 2008 11:25 AM
January 24, 2008 | Comments: (0)
As open source goes mainstream, big commercial software companies reap as much revenue as scrappy independents
Has the open source software movement become a victim of its own success? A provocative new study by a longtime software analyst suggests that the giants of the commercial software world are cashing in on the popularity of open source and becoming the dominant force in what was once called the free software movement.
Perhaps the most startling statistic in the report is this: IBM's open source revenue in 2007 was equal to that of Red Hat, the largest and most influential open source company. Not only did IBM equal Red Hat's open source revenue, but the next largest revenue earners were Sun and Oracle, according to the study. What does that mean for the long run?
"The market will see a convergence of closed and open source software such that the terms will eventually become meaningless from a research perspective," says Dennis Byron, senior analyst for Research 2.0, who has followed the IT industry for more than 30 years. And that, says Byron, is just fine with IT buyers. "They just want good software that doesn't break often, but when it does, a substantial company is available to fix it."
The economics of attraction
Indeed, the interest in open source software has been so strong that instead of going public, open source startups are being snapped up by commercial vendors like Oreo cookies at a kindergarten snack break.
And that's not because the IPO market was weak, says Kevin Harvey, a general partner of venture capital firm Benchmark Capital and chairman of MySQL's board. "The large public software companies see even more value [in open source companies] than the public markets," he said during an interview.
Preceding Sun's buyout of MySQL were purchases of Zimbra by Yahoo and of Xensource by Citrix. None of the takeovers was particularly cheap; in fact, there was some feeling on Wall Street that Sun and Citrix overpaid.
The result, of course, means less of an "open" open source market, while the prospect of a big payday with none of the risks of an IPO could well push more open source entrepreneurs into the hands of "the enemy."
Open source by the numbers
The sea change in open source from pure-play provider to traditional vendor is not a symptom of discontent with the software itself. Far from it, as the numbers show.
Worldwide revenue from stand-alone open source software reached $1.8 billion in 2006, according to IDC, and will increase to $5.8 billion in 2011, representing an annual growth rate of 26 percent from 2006 to 2011. That's roughly three times the growth rate of commercial software. (To be fair, the volume of commercial software dollars dwarfs open source dollars by at least an order of magnitude.)
Research 2.0's Byron figures that the open source market probably grew by 40 percent to $2.5 billion in 2007, a not unreasonable figure for the first year of the five-year growth spurt.
According to its own financial reports, Red Hat's open source revenue for the 12 months ending on November 30 was $425 million. That's a big number, but it's no bigger than IBM's open source revenue -- including WebSphere Community Edition, Linux support revenue, and the value of Apache within WebSphere -- which was also $425 million.
In the second full year of converting much of its software to open source, Sun posted $200 million in software revenue, while Oracle's open source revenue reached $100 million, Byron said. That gives the major commercial vendors a market share of nearly 30 percent. That share will likely be higher this year, when Sun's purchase of MySQL, which probably had revenue of about $75 million in 2007, is factored in.
The freewheeling days are numbered
All of this is evidence that the days of the freewheeling open source movement are numbered.
Is this bad news for open source? Not at all. Open source software is more than good enough to stand on its own merits, no matter who owns it. And it's about time that the hardworking visionaries of the open source movement were rewarded with good jobs and high returns on their money and sweat.
I welcome your comments, tips, and suggestions. Reach me at bill_snyder@infoworld.com.
Posted by Bill Snyder on January 24, 2008 03:00 AM
January 16, 2008 | Comments: (0)
Not too late to make small profit on BEA sale
Yeah, you (and I) missed the big money on Oracle’s takeover of BEA Systems. BUT, if you have some spare cash handy and low trading costs you can make a guaranteed 4% to 5% on the deal if you move fast. That’s because the stock is trading at a small discount to the offer price of $19.375 a share.
No, that’s not a lot of money unless you have a fairly good chunk of cash to put in, but given the state of the market it’s like buying a CD only better because you’ll only pay taxes on the gain. The deal will close later this year and Oracle will circulate the tender offer to shareholders.
I welcome your comments, tips and suggestions. Reach at me at Bill_Snyder@infoworld.com
Posted by Bill Snyder on January 16, 2008 10:58 AM
December 20, 2007 | Comments: (0)
Oracle Blows Away Expectations
Finally. Some good news in tech. Oracle did more than give its own investors a great Christmas present yesterday, blowing away Wall Street's expectations for the second quarter. Larry Ellison and crew also raised the hope that we'll see broader strength in technology than we might have expected moving into 2008.
There was also significant news for investors and employees of BEA Systems. Oracle pretty much declared its efforts to buy the middleware vendor at an end. Oracle CFO Safra Catz said her company has been talking to BEA in recent weeks, but has concluded that "no friendly deal can be done with the current board or management." That leaves very little wiggle room; it's possible BEA shareholders will revolt and replace the board, but highly unlikely.
Speaking of Oracle's results, Dan Morgan, a portfolio manager for Synovus Investment Advisers, said, "The quarter was huge. It's very positive for software (as a whole) moving into 2008." Indeed, the quarter was Oracle's best in more than a decade, said Catz, who is also Oracle's co-president.
But other savvy analysts I speak to regularly were more cautious. Peter Goldmacher, who covers software for Cowen, said that Oracle's success is not necessarily a sign of overall strength in software spending. Goldmacher and Global Equities analyst Trip Chowdhry pointed out that much of Oracle's success is due to its huge footprint across product and geographical lines. Chowdhry figures that Oracle and that other software giant, Microsoft, are likely to do well in 2008, but sales could be problematic for smaller vendors.
Assuming that Chowdhry is right about Microsoft, that also bodes well for companies such as Intel whose fortunes are tied closely to PC sales.
Significantly, sales were strong across the globe. There had been fears that Oracle might deliver good results on the strength of sales abroad, with the United States lagging in the wake of the credit/sub-prime mortgage mess. But that wasn't the case.
New software license revenue, a key indicator of future business, was up 38 percent overall. Database and middleware revenue (Oracle lumps the two together) grew by 28 percent, while application licenses soared 63 percent. Those numbers should end concerns that Oracle's exposure to the troubled financial services industry has become a major problem.
Oracle's middleware business grew sharply as well, up 80 percent, though it wasn't clear if those numbers included sales from Hyperion, acquired earlier this year.
Oracle claimed that at least part of its database gains was at the expense of rival IBM, and that it's taking applications business away from SAP, but neither can be verified in a hurry.
Revenue totaled $5.31 billion, a 28 percent improvement from $4.16 billion in the same quarter last year. Analysts, on average, had projected revenue of $5.04 billion.
The company earned $1.3 billion, or 25 cents per share, for the three months ended Nov. 30. That represented a 35 percent increase from net income of $967 million, or 18 cents per share, at the same time last year.
More tomorrow when the dust settles a bit.
I welcome your comments, tips, and suggestions. Reach me at bill.snyder@sbcglobal.net.
Posted by Bill Snyder on December 20, 2007 03:00 AM
December 06, 2007 | Comments: (0)
All IT surveys aren't created equal. I give Goldman Sachs more weight than most of its rivals, including JMP Securities (a boutique investment bank), and some of the lesser-known research shops. But when Goldman, JMP, and now ChangeWave, (one of the aforementioned second-tier research firms) all get on the same page, you have to pay attention.
Surveys by the three organizations indicate that the credit crunch and fears of a possible recession have convinced IT execs to rein in spending in 2008, with the software sector taking a significant hit.
In the most recent survey, JMP analyst Patrick Walravens downgraded Oracle after finding 61 percent of the 38 companies he surveyed expect their software spending to be flat or down in 2008. And in a rather unsettling aside, he said, "We think Oracle can find ways to save money to protect its earnings per share. We expect to see some reductions in the sales force as well as other cost-saving measures."
Granted, 38 companies, even if carefully selected, comprise not much of a sample. But JMP has been conducting the survey for seven years, and according to Walravens, the result is the worst since 2001 "and is similar to the result in May 2003, which marked the beginning of a two- to three-year choppy period for Oracle's business."
The JMP survey has done a decent job predicting Oracle's results.
In the 10 months following the 2001 survey, Oracle's stock price dropped from $15 to $8. After the May 2003 survey, Oracle's stock traded up and down as it made the May 2003 quarter, missed the August 2003 quarter, made the November quarter, and then missed the February 2004 quarter. "We would not be surprised to see this type of uneven performance in our software universe until the U.S. economy regains its footing," the analyst wrote.
Walravens also downgraded Ariba for similar reasons. And while shares of Oracle slipped just a bit, Ariba fell more than 5 percent following his note. (By the way, Cowen analyst Peter Goldmacher had a different take on Ariba, saying that the company would actually benefit from a modest economic downturn, since it sells itself as a resource to help companies manage procurement spending.)
The JMP survey comes a few weeks after Goldman Sachs sampled a much larger group of companies and found similar, downbeat results. "We are reducing the estimates of most of our covered companies, focusing on pure-plays that could be harmed as customers seek to purchase 'good enough' substitutes from larger vendors, as well as vendors who sell 'big ticket' items that could be delayed in a slower spending environment," analyst Sarah Friar wrote in the report.
On a more positive note, Friar said that companies selling SaaS (software as a service) would likely do better. "The ability to quickly and easily turn on new applications with a significantly lower initial cost of ownership makes SaaS an attractive offering for small and midsized businesses, significantly expanding the market for software applications."
ChangeWave sampled more than 1,900 companies and said, "Projected IT spending growth looks anemic for the coming quarter compared to the robust seasonal increases we normally see at this time of year. Simply put, this is unusually bad visibility for IT spending."
I have a quarrel with that conclusion. I've often seen spending slow down in the first quarter, following a fourth-quarter budget flush. But the fact that sentiment in so many companies is more negative than usual for this time of year gives ChangeWave's conclusion some weight.
We'll get a change to hear real numbers from Oracle on Dec. 19. The results for the quarter will likely be good, but Wall Street will be very interested in the company's outlook for the next three months.
Rate cut could change the game
As I write this post on Wednesday, the market is making a strong
upward move, after two down days. The reason is two-fold. There's
more and more confidence on Wall Street that the Federal Reserve will
cut interest rates. Moreover, there is some good economic news
buoying the market.
As I wrote last week, the potential rate cut is dominating the thinking of investors right now. The market is counting on a cut of at least one-quarter of a point and that news is essentially priced into stocks at this point. A half-point cut would obviously be welcomed with a rally, while a stand-pat stance would makes things ugly in a big hurry.
Stay tuned.
I welcome your comments, tips, and suggestions. Reach me at bill.snyder@sbcglobal.net.
Posted by Bill Snyder on December 6, 2007 03:00 AM
November 18, 2007 | Comments: (0)
The Legion of the Disappeared or Where Has All the Software Gone?
I was updating some files recently and I came across a list of the companies that made up the Goldman Sachs Software index just two years ago. Of the 46 large and mid-cap companies on the list, ten no longer exist or have been merged into a larger organization. Most of us are well aware of the wave of consolidation that has swept the industry, but it’s striking to see how many important companies have been taken out.
Those gone from the GSTI (short hand for the index) are Aspect Telecommunications, Cognos (as soon as the purchase by IBM closes), Filenet, Hyperion, Internet Security Systems, McAfee, Mercury Interactive, Siebel Systems, THQ. And remember that was just a list that the Goldman team deemed representative of the sector. There are plenty of other major software companies that have gone away, including most recently Business Objects, Retek, PeopleSoft, Oracle’s first major conquest, and Veritas, which developed storage-related software and is now part of Symantec.
Heck, Oracle alone has swallowed more than 30 companies in the last three years or so, IBM software is a frequent buyer, and now SAP is getting into the act.
I’ve complained about the collateral damage
caused by the wave of software M&A -- loss of jobs, less competition and less innovation -- in these electronic pages before so I won’t repeat myself. But it’s becoming clearer and clearer that the market will pretty much support only large-cap, integrated software companies, and nimble little niche players. The great unwashed of the mid-range are disappearing rapidly and won’t be back.
Although, some of those companies, Mercury Interactive comes to mind, shot themselves in the foot via bad management practices, many of the disappeared had solid businesses and decent (sometimes excellent) management. This is altogether different from the dynamic that reduced the major players in the PC industry to a handful. In that case, the PC became a commodity and it made no economic sense to build them without huge economies of scale. A similar dynamic radically thinned the ranks of hard drive makers.
I think Marc Benioff of Salesforce.com overstates when he talks about the end of software, but we are most certainly going to see the end of more mid-sized software companies in the next few years.
Posted by Bill Snyder on November 18, 2007 12:42 PM
November 15, 2007 | Comments: (0)
Don't Get Caught in the Stampede
Apple and VMware took the rap when Cisco's warning and Oracle's virtualization announcement panicked tech investors. That was a mistake.
Don't think the market is always rational. Investors, even smart ones, can get caught up in the day's news and the resulting emotion. At times, that results in wildly overinflated prices for companies that have no chance of long-term success; remember the outfit that was going to make a fortune delivering kitty litter online?
At other times, the market overcorrects the other way. A spate of bad news makes investors nervous, and suddenly everyone is looking for an excuse to run for the exits. That's what happened last week. With all sorts of bad macro news -- the continuing market meltdown, rising oil prices and the limp dollar -- investors had reason to be nervous.
Then came Cisco's first-quarter earnings call.
In fact, it was a very strong three months. First-quarter revenue was $9.6 billion, up nearly 17 percent from $8.2 billion in last year's first quarter. Net income rose more than 37 percent to $2.2 billion from $1.6 billion a year earlier. Earnings per share were $0.35, up from $0.26 in last year's first quarter. What's wrong with that? Sales to the U.S. financial sector were weaker than expected.
Investors took that as a very negative signal, and to be fair there was certainly reason. But one of the companies that took a major hit was Apple. Say what? Of all the major computer companies, Apple has the least exposure to enterprise sales, and its consumer business, headlined by the iPhone and the iPod, is terrific.
Part of the reason for the slide: momentum players. These are hedge funds and other institutions that trade directionally over the short run. When a stock moves down, short sellers can get into the game, and suddenly the stock is really tumbling. That in turn upsets the broader market, particularly retail (Wall Street lingo for Mom and Pop) investors who sell.
Apple recovered nicely on Tuesday, along with the broader market, and got a big boost from news of strong iPhone sales in the U.K. and a possible big deal in China.
Meanwhile, Oracle kicked off OpenWorld with an announcement that it was jumping on the virtualization train.
Kaboom went shares of VMware. Investors with positions in VMware and EMC, which owns most of VMware, freaked. VMware, the hottest IPO of the year, had been sliding anyway. But the Oracle news got it tumbling.
Interestingly, there are a lot of questions about what Oracle is really going to do about virtualization. Benchmark analyst Brent Williams put it this way: "We believe a product likely to add de minimis revenue to Oracle's deal size is unlikely to attract significant attention from Oracle's sales force, and thus is unlikely to be featured in significant numbers of deals."
Similarly, Citi analyst Brent Thill said in a note to clients: "Oracle's announcement to offer and support their own flavor of the Xen open source hypervisor does not affect VMW's position as the
de facto standard in server virtualization. Xen, as an open source project, is already freely available on the web or through other vendors. VMware's own base hypervisor technology, VMware Server, is available as a free download."
The Benchmark analyst noted something that struck me right away: The virtualization announcement is reminiscent of the big splash Oracle made with "Unbreakable Linux," a splash that temporarily swamped the share price of Red Hat. As it turns out, "Unbreakable Linux" isn't much of a factor in the market at all.
That's not to say Oracle won't make headway in virtualization. But not right away. Meanwhile, VMware's release of Server 2, its free virtualization product, is getting rave reviews.
So, morning-after thoughts by analysts, plus the Server 2 release, turned VMware around.
The bottom line: There's obviously reason to worry about the strength of tech sales going forward, but take a deep breath and look closely before you sell. Indeed, the dip in VMware's value might well have been an opportunity to buy some shares at a nice discount. (In fact, I did that very thing, and now hold a small position in VMware.)
I welcome your comments, tips and suggestions. Reach me at bill.snyder@sbcglobal.net
Posted by Bill Snyder on November 15, 2007 03:00 AM
November 11, 2007 | Comments: (0)
Oracle's Worst Case Not So Bad
Shares of Oracle got creamed Friday, plunging nearly 8% after Cisco’s John Chambers spooked Wall Street with his dire-sounding warning about tech spending. In essence, investors are worried that Oracle’s exposure to the financial services industry could slam revenue and earnings over the next few quarters.
However, an interesting analysis by Sanford Bernstein analyst Charles Di Bona, indicates that the news made not be as bad as some investors fear.
Di Bona figures that roughly 4% to 11% of Oracle’s total revenues may come from sales to the
North American financial institutions. He has to estimate, because Oracle doesn’t break out its revenue that finely, but it’s likely that the actual number falls near the middle of that range, he says.
Digging further, the analyst estimates that perhaps half of the spending represented by that revenue is non-discretionary or related to necessary upgrades and maintenance. If 30% of those discretionary purchases are eliminated, “we estimate Oracle would lose $200 million to 300M of revenue through the balance of FY-08,” he says in a note to clients.
Before this week’s tech wreck sent everyone scrambling, Wall Street was expecting Oracle to post revenue of $21.4 billion, according to Thomson Financial, which means revenue would slip by 1.4% at the high end of Di Bona’s estimate. No one likes to see sales slip, but given its relatively small exposure to the financial sector, Oracle may well have taken more lumps than it really deserves.
Of course, Cisco’s scary warning may presage a general downturn in spending that would be hard on the entire software sector. Di Bona’s also notes that Oracle may have set itself up for a fall by reducing the amount of information it releases to investors, which in turn led them to assume the worst. Moreover, the stock had gained a lot of ground this year, and may have been at the top of its range.
Meanwhile, downtown San Francisco is jammed with Oracle OpenWorld attendees. With the big event kicking off Sunday evening, visiting techies were lined up to ride the nearby cable cars, and restaurants near Moscone Center were jammed. As you’d expect, traffic is ugly; if you’re going to the show, don’t drive your car.
Posted by Bill Snyder on November 11, 2007 02:41 PM
October 25, 2007 | Comments: (0)
Interesting day on Wall Street. BEA Systems said it would sell itself to Oracle or anyone else willing to pony up $21 a share, or about $8.2 billion. For the moment, investors are not taking the new asking price very seriously. Indeed, shares of BEAS actually lost a few cents of value following the early morning announcement.
The Street’s logic is easy to follow. Before Oracle’s offer to buy the company, BEAS was trading at $13.62 a share. Oracle offered $17 a share, a premium of nearly 25%. At $21, the premium jumps to 54%. Yikes! (Okay, the premium is a bit less when you factor in the $1 billion or so in cash BEAS has on hand, but it’s still might hefty.)
Now, I can’t read Larry Ellison’s mind, and there are those, including analyst Trip Chowdhry of Global Equities Research, who thinks he’ll buy at the higher price. (Trip, by the way, has made some good calls on Oracle in the past.) Even so, if you were to buy shares at Thursday’s closing price of $17.53 and the stock goes to $21 a share, you make a rough profit of $3.47 a share. But if the deal falls through the stock will head south like a falling manhole cover, probably winding up at around $13. So you’d lose $4.53 a share.
Some people might like those odds, but I don’t. And neither did many investors. Which is why BEAS end the day with a 2-cent loss instead of a big gain. There could well be a lot of back-stage maneuvering in the next few days, and anytime something leaks out the stock will react.
Another point: I’m not sure BEA is serious. It could well be that the board of directors figured they could be opening themselves to a shareholder (as in Carl Ichan) lawsuit if they simply stonewalled Ellison’s bid. By throwing out a counter offer, their butts are well covered if Oracle walks. And if he goes for it, they make a ton of money. Talk about win win.
The more significant story of the day, though, was the pair of strong quarterly reports issued by Microsoft and EMC, which helped calm tech investor nerves after Wednesday’s carnage on the NASDAQ. More about this later.
I welcome your comments, tips and suggestions. Contact me at bill.snyder@sbcglobal.net
Posted by Bill Snyder on October 25, 2007 04:42 PM
October 25, 2007 | Comments: (0)
Forget today’s ticker. Tech is showing strength across the board
In a nervous market, share prices can bounce around like corn in a popper. But with the fall earnings season at the midpoint, tech companies are showing strength across multiple sectors.
There have been solid reports from chip makers, including Intel; outsourcers such as Satyam; Google, Amazon and Yahoo! in e-commerce; Seagate, whose sales are largely tied to the health of the PC industry; and Apple.
Software is still something of a mixed bag; IBM’s software business was weak, SAP is problematic and Microsoft won’t report until Thursday afternoon. Oracle, the other software bellwether, posted a 25% quarterly gain in profits when it issued its financial report last month.
Results aside, the volatility has been rather amazing. On Tuesday, Amazon, Google, and Research in Motion, chalked up big gains in share prices. Amazon’s bump was driven by a very strong quarter. But then the market decided that the online seller’s margins might not be good enough for the Christmas season, and the stock tanked Wednesday morning, taking much of the NASDAQ with it.
Even worse for the broader market was the terrible report by Merrill Lynch which reminded investors that the credit crunch is far from over. Even that could have a bright side: some Wall Streeters figure the news could convince the Fed to cut rates a bit more.
Meanwhile, it looks like Microsoft, whose share price moves at glacial speed, will give investors something to cheer. Analysts polled by Thomson Financial are forecasting 39 cents a share for the September quarter on $12.6 billion in revenue.
Both profit and sales figures would represent double-digit percentage gains over the numbers the software giant posted for the same period last year.
Halo, Microsoft’s popular first-person shooter, drove a boatload of Xbox 360 sales last month. According to NPD Group, a research outfit that specializes in retail sales data, sales of the game console hit 527,800 units during the month, nearly double the number of units sold in August.
Xbox sales are somewhat paradoxical because Microsoft loses money on each one it sells, so better sales equal slightly lower earnings. Contract manufacturer Flextronics, on the other hand, does make a profit on the Xboxes it makes for Microsoft and that helped the company post a strong quarter.
Seagate is interesting as well. In an interview with Barron’s, CEO Bill Watkins said that his company has sold out its production for the fourth quarter, and is turning away orders for millions of units. He also said that Seagate has no current plans to increase its capacity, a refreshingly conservative move in an industry driven by frenetic boom and bust cycles.
Apple hit a home run, as we all know, but it’s still worth noting that very strong iPhone sales gave AT&T a boost; the telco giant netted 2 million new subscribers in the quarter, the biggest jump in the company’s history.
EMC reports early Thursday, and it should give us answers about the enterprise storage market and important clues about the strength of business spending on IT.
And finally, the PC market: We won’t hear from Dell and Hewlett-Packard until next month, but the strong showings by Intel and Seagate certainly indicate strength in demand. Moreover, worldwide PC sales sped up in the quarter with 15.5% year-over-year growth, according to research firm IDC. Sales by Dell finally accelerated, particularly in Europe and Asia.
The bottom line: This is a brutal, volatile market. But tech’s losses have been largely caused by larger worries about the credit crunch and its parent, the sub-prime mortgage meltdown. I’d be sweating a lot more if I didn’t see solid sales and earnings by the major players.
I welcome your comments, tips and ideas. Write me at bill.snyder@sbcglobal.net
Posted by Bill Snyder on October 25, 2007 03:00 AM
October 17, 2007 | Comments: (0)
John Wookey’s surprising departure could be a sign that Oracle’s middleware push could be foundering.
Betting against Larry Ellison’s acquisition strategy is always on the dangerous side. When he wanted to take plucky little Peoplesoft away from its kind-hearted management team (That’s a joke. Once Dave Duffield moved upstairs, the company was neither small, nor very friendly) everyone said he’d never win. They were wrong. And when the U.S. Department of Justice tried to squash the takeover, Oracle beat the odds, giving the Feds an embarrassing bloody nose.
Now Ellison is after BEA Systems, and there’s speculation that H-P or IBM (SAP says it won’t play) could start a bidding war and run up the price. I suspect that won’t happen, but I’m not placing any bets. Meanwhile, this week’s announcement that John Wookey is leaving the company poses yet another interesting question: Is Fusion, Oracle’s grand scheme to unify middleware it has acquired or developed over the last few years, in serious trouble?
I don’t know, and probably none of us will find out for sure until we head for OracleWorld in San Francisco next month. But something’s not right here.
First of all, the acquisition of BEA is surprising. The Fusion project is difficult enough. Why add yet another layer of complexity -- and a very thick one at that -- by adding WebLogic to the middleware mix? And I’m not altogether sure the deal would pass muster with the Feds.
So much for my opinion; Oracle thinks it can do it. And up until Tuesday, John Wookey, senior vice president in charge of apps development, was in charge. Neither Wookey nor Oracle are talking, but there’s speculation that Fusion is running late, and someone has to take the fall.
I hate saying I don’t know, but I don’t know. However, the Wookey-as-fall-guy routine rings true. Unlike PeopleSoft, Oracle’s management has never pretended to be anything but hard ball. If Fusion is in trouble, someone whose name isn’t Larry Ellison or Charles Phillips, is going to get spanked. Hard.
Fusion is due in 2008, and I wonder if it will meet the deadline. And if it does, will it really be a unified platform, or will it be a placeholder of glued-together applications?
The bottom line: Wall Street doesn’t like uncertainty. I’m usually rather bullish on Oracle, but I’d expect the market to take a wait and see attitude. And so will customers.
I welcome your comments, tips and suggestions. Write me at bill.snyder@sbcglobal.net.
Posted by Bill Snyder on October 17, 2007 05:19 PM
September 21, 2007 | Comments: (0)
Tech Still Strong say Oracle and PC Sales Reports
After unending streams of bad news about the economy, Oracle's robust first-quarter report and Gartner's bullish PC forecast are heartening.
Software license growth in the quarter, which tends to be seasonally weak, was the strongest the database giant has posted in 10 years. And since Wall Street always looks to the future, the solid guidance for the second quarter cheered investors, and more importantly, is early evidence that the crisis in the credit markets is not (or at least, not yet) putting a hit on IT spending plans.
By the way, I mentioned in an earlier post this week that Wall Street doesn't get the open-source business model. It's also true that some on Wall Street don't get Oracle. So it's no surprise that a number of analysts and commentators fretted over the report. Even so, the stock jumped a very healthy 4.4% today, setting a new 52-week high at $21.31 a share.
In a conference call with analysts, the company emphasized that it is not going to follow rival SAP by pursing sales to smaller companies. The big reason: Margins. Going "down market" is expensive and that hurts profits. Instead, Oracle, which has broadened its offerings via a multi-billion dollar acquisition binge is selling into its installed base, a much cheaper, and therefore higher margin strategy, notes Cowen analyst Peter Goldmacher.
You may remember that when Oracle purchased PeopleSoft there was lots of noise in the IT community to the effect that customers would defect and that Oracle would let the acquired company's products languish. . But it hasn't happened. Indeed, "As a great
example, over one-third of the acquired PeopleSoft installed base is now in the
process of upgrading to PSFT 9, said Citigroup analyst Brent Thill.
(You can see details of the quarterly report at InfoWorld's sister site.)
Turning to another high-tech bellwether, the PC market, Gartner analysts predicted that worldwide PC shipments will grow 12.3 percent this year, dropping slightly to 11 percent growth in 2008. "The ongoing global economic turbulence will most likely have little effect on PC shipments in the months to come," said Gartner's George Shiffler.
Is high-tech crunch proof? Obviously not, and Shiffler advised PC makers to be sure they have flexibility in their supply chains should the downturn spillover. Still, these are two welcome data points that bode well for IT spending -- and perhaps hiring -- over the next few months.
I welcome your tips, comments and ideas. Write to me at bill.snyder@sbcglobal.net.
Posted by Bill Snyder on September 21, 2007 01:34 PM
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