2HR2GO: Oracle always comes back

COMMENTARY -- Oracle (Nasdaq: ORCL) should sell Teflon.

It would certainly reflect the stock's long-term performance. You might be worrying about today's dip in Oracle's stock price, but it doesn't look unusual when you consider the stock's performance in recent times.

Shares of Oracle fell, sometimes sharply, after four of the previous six quarterly reports. But the company has always shrugged off concerns in the long run.

For the most part, you can blame ORCL's post-earnings retreats on the company's lack of forecasting ability. Maybe it's the nature of enterprise software sales or bad internal analysis or bad luck or whatever you care to name, but Oracle historically hasn't done well in guiding the analysts whose models produce those earnings estimates used as a benchmark for corporate performance. Thus, there's often one part or another of Oracle's business that misses expectations.

You can lay much of the blame at company executives' feet, especially CEO Larry Ellison. "Underpromise and overdeliver" has been the mantra of publicly-held corporations for years, but not Oracle.

After the fourth quarter, CFO Jeff Henley described the first quarter pipeline as "stunning", which it was. Problem is, analysts factored stunning and more into their models, which resulted in Oracle's sales merely meeting rather than beating expectations.

So this time, applications -- the future of Oracle -- came in far below published forecasts, even though Ellison has been preaching about Web enterprise suites for several quarters now.

That preaching has always been the strength and curse of Oracle. Analysts talk about filtering through Ellison's hype, but they fall prey to it themselves.

Take this latest call as an example. Ellison, as usual, sounded on the verge of spontaneous combustion during yesterday's talk, while analysts during much of the Q&A sounded wary or weary of the endless bombast. Analysts wondered why apps didn't sell as well as expected. When will quarters become more predictable? Are database sales going to stay up or is 32 percent year-over-year growth a one-time thing?

Ellison, doing his customary P.T. Barnum imitation, breezily blew through the questions and ended on another selling note.

"We think we're off to a tremendous start and it's just going to get better and better and better," Ellison proclaimed near the end of the call. "And now I'll let Jeff talk you down."

Jeff meaning Henley, who put on his best face of caution.

"All that said, I encourage people to be conservative, it's just prudent," Henley said. "I wouldn't encourage anyone to hike their models up."

With all their ingrained skepticism, analysts might have been expected to heed Henley's words. They didn't.

Salomon Smith Barney, Banc of America, Deutsche Banc Alex. Brown, JP Morgan, Bear Stearns and Lehman Brothers succumbed to Ellison's spell and raised their Oracle earnings estimates today. Others will follow.

In their defense, it is hard to resist, because Oracle is doing great by any objective measure. Why complain about rapid growth on a large base?

Problem is, Ellison delivers impressive sales that still manage to fall short of his bluster. Oracle led analysts to believe the 11i suite would take off in the first quarter; it did well, but not as well as expected.

And Oracle has done that many times before. It's at the point where every Oracle observer takes Ellison with a Lot-sized pillar of salt.

Yet they believe him in the end. Oracle's stock often slides after earnings, but it never stays down for long. You can bet the same will happen this time, even though Oracle's stock already carries one of the loftiest valuations of any software company in the world.

After all, the concept of an integrated Web suite sounds logical. Ellison ridiculed the IBM (NYSE: IBM) practice of selling different ERP and CRM products and tying them together with system integrators. Would people buy a car by piecing together an engine, transmission, and chassis from different manufacturers, Ellison asked rhetorically.

He shouldn't use that example, because car makers are system integrators. My last pickup truck -- bought in 1993, long before the DaimlerChrysler merger -- said Dodge on the outside, but the engine was a Mitsubishi. Transmissions are built by specialty manufacturers. Tires come from Goodyear, Michelin or Firestone (maybe not anymore on that last one). Heck, Ellison's own company is helping build the Covisint auto parts exchange.

The same holds true for software. If integration was so great in and of itself, Oracle's database wouldn't hold market share over Microsoft on the Windows platform. Yes, Larry, different software products can work well together.

Bad analogies or not, people remain convinced Oracle will deliver on its applications promise at some point, even if Oracle can't predict when.

Company executives call for "spectacular" growth, but won't say how much. The company sees at least 40 percent operating margins sometime this year, but can't say when it will happen.

Those questions are dogging the stock today, along with some of the usual "Sell on the news" activity. But it'll fade eventually, because if the past is any indicator, Oracle will come through at some point.

That's why the stock will bounce back. It always does. 22GO>