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Dot-coms reignite database software industry

Nearly given up as a low-margin business just a few years ago, the database software market is making a comeback, fueled by increasing demand from Internet businesses.

Nearly given up as a low-margin business just a few years ago, the database software market is making a comeback, fueled by increasing demand from Internet businesses.

Database software makers Oracle, IBM, Informix, Sybase and Microsoft are raking in huge profits, as sales are once again booming after a long drought. Database sales are the highest they've been since the early 1990s, when database software companies routinely reported 40 percent to 50 percent growth each quarter.

Market researcher Dataquest reported yesterday that overall database sales grew a healthy 18 percent last year to nearly $8 billion worldwide.

Market leader Oracle last month saw its quarterly database revenues jump 32 percent from the previous year. Sybase and Informix reported that their first-quarter revenues rose 10 percent, as Informix's profits tripled. And IBM said in its latest quarterly report that its database revenues climbed 10 percent.

Microsoft, which doesn't break out revenues for its SQL Server database software, said its database software sold "extremely well" last quarter. The company's applications and developers unit, which is responsible for SQL Server as well as Office and other products, said revenues grew 26 percent in the most recent quarter.

Database companies credit the spike in sales to the growth of the Internet.

"The growth of the Internet has given databases new life," said Charles Kane, chief financial officer at Informix, which has staged its own near-death comeback in the past year.

E-commerce in its many forms is fueling at least part of the boom, analysts said.

"It's like the Gold Rush. In the early days, everyone went to mine, but the companies that sold the picks and shovels got rich off the miners," said Punk Ziegel analyst Gary Abbott. "In the current e-commerce gold rush, very few miners are striking gold, but the companies selling the infrastructure, like databases, are getting rich."

Analysts and software executives say database sales are soaring because businesses want to create Web portal sites that connect their employees with customers and partners, while e-commerce sites need the technology to store order information and electronic catalogs. For example, Web sites can take customer information stored in databases and seek trends, such as buying preferences.

Wall Street has taken notice in the past year, as share prices for database companies have jumped. Sybase, which traded in the $5 range a year ago, is now hovering in the mid-$20s. Informix climbed from roughly $7 a share to nearly $20 before sliding recently. And Oracle, which flirted with the mid-teens last spring, now trades at a hefty $74 per share following a 2-for-1 stock split in January.

Analysts who once fawned over e-commerce and Internet companies are now touting computing infrastructure software, which in turn is spurring investor interest in highly profitable database software makers.

For example, Internet investment firm Safeguard Scientifics recently announced that it would switch its investment focus away from business e-commerce firms and toward businesses that provide software, services and communications technology for the Web.

Staging a rebound
Today's renewed database industry is a far cry from the state of affairs just three years ago, when the forecast for the database software market turned gloomy. Software makers Informix, Sybase and Oracle all suffered from financial difficulties.

Compounding the hurt was Microsoft's low-cost entry into the database market, SQL Server, which sparked a price war that drove down prices, turning the once lucrative technology into a low-profit business.

In addition, it appeared that every large company--traditionally the biggest spenders on databases--already had all the database software they needed.

Now, with Year 2000 bug concerns out of the way and the Internet revitalizing database sales, analysts and database software makers see strong revenue growth ahead. Businesses need high-end databases that are powerful and reliable and can handle new types of data, such as video and audio. And database software makers are now duking it out for market share.

Database makers also are targeting the exploding mobile market with a smaller database for handheld devices and laptop computers. It allows customers with mobile devices to connect to corporate networks to download and sync data.

The renewed growth has spurred increased competition. IBM recently announced plans to hire 1,000 sales and software engineers in an attempt to woo Oracle customers. And in a move to quiet critics' complaints that its current database isn't reliable enough, Microsoft this summer will release SQL 2000, a product the company says is powerful enough for e-commerce sites and large businesses.

Carl Olofson, an analyst with International Data Corp., expects database sales to skyrocket in the next few years, as every business moves to an Internet model and as application service providers--companies that rent Web software to businesses--become more popular.

"As more companies do business online, they need to connect their systems together," Olofson said. "They need to accept contracts, send purchase orders, transmit bills and payments. All that stuff has to be tracked, recorded and managed, and naturally, it will be done with databases."