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Oracle's fight for Wall Street cred

Co-president Charles Phillips says his former brethren are doing a poor job of grading the company's performance.

Wall Street remembers him when he was just plain "Chuck."

Chuck, as in Chuck Phillips, a Morgan Stanley star analyst who moved to Oracle three years ago and became its co-president--in the process, jettisoning "Chuck" for "Charles."

But the old-school tie doesn't count for much when it comes to his former colleagues giving Oracle a thumbs up. Analysts have continuing complaints about Oracle, especially the way it slices and dices its quarterly results. Oracle's stock has remained stuck in the low teens seemingly forever. None of this makes any sense to Phillips, who confesses frustration with the pessimism voiced by his former colleagues.

That's one reason Oracle is launching a major advertising campaign, which, coincidentally or not, takes place just as archrival SAP kicks off its annual Sapphire user conference in Orlando, Fla.

I can't get the financial analysts to (do market share analysis) anymore. I guess they don't feel it's their job anymore, or they don't like math or whatever.

Phillips recently chatted with CNET about the database debate, Oracle's closely watched Project Fusion and the company's struggle to receive recognition as a growing enterprise.

Q: Why are you rolling out this ad now, and who are you targeting with this ad? Buyers of SAP, buyers of Oracle or Oracle investors?
Phillips: All of the above. It does have impact in the marketplace when customers perceive that you have momentum and are gaining market share. It's useful to get that information out to the marketplace.

The trouble is, I can't get the financial analysts to do that sort of work anymore. I guess they don't feel it's their job anymore, or they don't like math or whatever. So, I figured, let's go direct and get the message out, because the perception is that if you listened to SAP, you would think that they are growing faster.

Listen up

Phillips takes analysts to task Oracle's latest advertisement that takes a jab at archrival SAP is a byproduct of Phillips beef with analysts, his former brethren.

Download mp3 (596 KB)

You sound unhappy with the coverage Oracle is getting from Wall Street. Do you miss being an analyst?
Phillips: No, not if they're going to do it as poorly as they're doing it now. So no, I don't miss it. I know how to do this, obviously, and it's not that hard. This is not rocket science. You just have to do your homework.

Your ad claims that Oracle's applications license business, excluding acquisitions, rose 31 percent in the most recent quarter. Your figure for SAP says its license business grew 14 percent in its most recent quarter, but that includes its middleware. Why include middleware? What if its NetWeaver middleware is pulling down its results?
Phillips: When Oracle gives you an applications number, it's only applications. It doesn't include middleware, databases or third-party products. It's just pure applications that we sold during that quarter. But when SAP gives you a license number, it bundles in everything, including its middleware NetWeaver, including third-party products--and including our database, which they resell. All that is included as SAP license revenue.

If you believe them, that NetWeaver is growing faster than the rest of the company, and they are throwing out some pretty high growth rate figures, then that means its applications business would have to be growing even more slowly. If NetWeaver is growing faster than the total, then that means something is growing more slowly than the total.

Why did you compare only the most recent quarterly results? Why not compare a trailing 12-month period?
Phillips: The latest quarter is a fair comparison. With all the changes and acquisitions we had, there was nothing else that was comparable. But now, with this last quarter, it was the first time we had a quarter that was somewhat comparable to the quarter a year ago. We owned PeopleSoft in the prior year for the quarter that just ended, so the only addition we had was one month worth of Siebel. We were able to quantify the quarter and back out acquisitions, since it was only Siebel (in the mix).

With all your acquisitions, how is timing looking for producing a single line of code for Project Fusion?
Phillips: We are saying the first components of Fusion will start to ship in 2007, and the first version of the full suite will ship in 2008. We also told people that we will give them choices. Even when Fusion ships, that doesn't mean that we won't have new versions or new developments on PeopleSoft, Siebel or J.D. Edwards, or the existing applications.

What are you doing to attract customers to spend the big bucks while they wait for Fusion to come out?
Phillips: The way we get our applications revenue to grow 82 percent is to have people sign big deals. (Oracle's advertisement states that applications licenses grew 31 percent, excluding acquisitions.) Customers are saying, "Oracle has taken me through upgrades many times before. I have been with you when you had mainframe products, client-server products to Internet products." They have been through this before with us with other technologies, and they know we never leave anyone behind.

What about Fusion supporting competing databases, like your PeopleSoft and J.D. Edwards does now? Are you any closer to making a decision on this?
Phillips: We are closer, but no decision has been made. There are some technical hurdles--but it's not coming from us--on whether other databases can accommodate the features that are needed. We are working with third parties that are interested in supporting Fusion with their databases, and we provided them with technological documents to say, "This is what you need to do." And at this point, we don't know if it's possible.

And ETA on when a decision might be reached?
Phillips: We are not controlling the schedule, at this point. In March, we provided to third parties information on, "This is what's needed; here's what you need to do, and here are the features that we use in our database that is not in your database. And if you want to run Fusion applications, you have to add it."

Who got these specifications, and what have they said?
Phillips: It's too early to tell, and we're not naming names. It's anyone who is interested, essentially, in the database market. Each one has to come to their own conclusion as to whether it's technically possible and whether they want to dedicate the resources.

It's not a decision that is in our court. We can't force them to announce support for Fusion.

This is not rocket science. You just have to do your homework.

What kind of effort has Oracle done to support and distribute its own brand of Linux?
Phillips: We'll talk about that when its time to talk about that. But the thought is not lost on us that many customers would like us to simplify their environments by having a synchronized stack that includes the application, the database, the middleware, the intelligence tools, the management tools and the operating system. We are the only company in the planet that would be able to give them a one-button upgrade across the stack.

Do you think the time to think about it would be after Fusion is fully under way? Would you have more brainpower and time to delve deeply in that, or would you consider getting into it now and multitasking?
Phillips: Larry (Ellison) is talking about it in the papers, so we've already thought about it.

Oracle has done a lot of acquisitions in the past 15 months, so what holes do you have left in your portfolio?
Phillips: I prefer not to think of them as holes but more as opportunities. We are pretty aggressive on the industry front, and that is where we think SAP is missing the boat. A lot of these customers say it's great that you can do back-office applications, and administrative applications are important, but they are not as important as industry applications that drive revenues and touch customers.

That area is much more complicated and harder to develop because you need people who come out of those areas. Typically, ERP (enterprise resource planning) companies have not been able to do that on their own. That's a legitimate and logical area for acquisitions. We are able to identify the best properties, and a number of them are already Oracle partners, so we know them.

Even though you have done a number of acquisitions in the past 15 months, it doesn't seem to have helped your database sales. Why is that?
Phillips: A lot of these companies (we acquired) were already shipping on the Oracle platform, so it wasn't a new port. I do think that over time, to the extent that some of the companies were supporting multiple databases, the tendency of customers is, they want to buy it all from one company. Our share underneath those applications will go up over time.

When you look at Oracle's database business, it's lumped in with its middleware. Why doesn't Oracle break out its database figures separately? The database is core to Oracle's roots and growth, and some investors would like to see its figures in its own bucket.
Phillips: When you are going through a change, some investors who invested in Oracle when we were only a database company want to gravitate to that. They think that if I just knew that one thing, everything would be OK. Well, we're in many other businesses now, and we're not the same company as we were then. It's one more component, and it's an important one, but it's shrinking as a percentage of the total as we diversify. We will never go back to that, and that's a reality.

People will have to adjust to that, and they are starting to. Our stock is starting to go up, and they are viewing diversification as a positive now.

Listen up

Database and middleware sales figures to remain as one Investors can forget the old days, when Oracle's quarterly database figures were just that--database figures, said its president Charles Phillips. The merging of the quarterly middleware and database figures is a practice that's here to stay.

Download mp3 (280 KB)

Oracle's stock has been largely dormant for several years. Have you thought of issuing a dividend, especially since you generate a ton of cash?
Phillips: Most of the tech sector has been dormant for years, and it's mostly been large-cap stocks. Relative to the rest of the group, we didn't do that badly. But now we're starting to outperform the rest of the group. We're doing well but (aren't) getting credit for it. I like to say were probably the best house in a bad neighborhood. But now they are starting to separate us from the pack.