Over the past eighteen months, executives at Oracle have doggedly reiterated a ‘business as usual’ message, in order to underplay the negative impact on sales that its hostile takeover bid for PeopleSoft is having on both businesses.
Even with the latest news that the US Department for Justice failed to block the deal, the stakes remain high for Oracle, especially as an upgrade to its E-Business Suite, 11i.10, is scheduled for release in late 2004. At a recent conference call with investors, Oracle president Chuck Phillips said that the company’s salesforce is being asked to focus on articulating the benefits of Oracle’s E-Business and collaboration suites, rather than thinking about PeopleSoft.
But judging from the company’s financial results for its first quarter sales, staff have been distracted and customers less than impressed by the takeover fight.
During the period to the end of August, business application licence revenue crashed by 36% to $69 million, down from $107 million in the year-ago first quarter. A breakdown of those numbers shows that in Europe, the descent was even steeper, with sales tumbling 49% to a mere $28 million. Following on from a 12% decline in the region in the fourth quarter of 2004, that drop has analysts worried that there is something broken with the European applications business.
That performance also underlines how important the PeopleSoft deal is to Oracle, if it is to have any chance of fulfilling its goal of being a worthy competitor to applications market leader SAP. “We continue to believe it’s a very important thing for Oracle to complete that transaction,” Oracle chairman Jeff Henley told investors. The deal remains on hold while Oracle awaits the outcome of an antitrust review by European officials, and another trial in Delaware (see Analysis section).
Applications aside, there was more positive news elsewhere from Oracle. Database software sales rose 14% to $494 million, with the company’s executives attributing strong demand to its recent emphasis on grid computing. Outsiders point more to its dominant position in the Unix and Linux database markets. Those upbeat figures enabled Oracle to post overall revenue growth of 7% to $2.22 billion and a net income that rose from $440 million in the year-ago quarter, to $509 million – a profit that amounts to a hefty 23% net margin.
In late 2003, Forrester Research analyst Andrew Parker reported that IT services companies in Europe were struggling to adapt to a rapidly changing market – and so it has proved, with a mixed bag of interim results from companies in that sector.
UK-based Morse, for example, is trying to increase its reliance on services, having once focused almost entirely on hardware reselling. The acquisition of management consultant CSTIM, which specialises in the investment banking sector, for up to £15 million in April 2004 was part of that push, but the proposed £50 million acquisition of struggling software services group Diagonal is a more ambitious step. In the second half of its 2004 financial year, Morse reported revenues of £202.9 million ($367.3m), up 23% from £165.5 million ($299.6m) in the comparable period of 2003. Net losses for the period fell to £7.4 million ($13.3m) from £10.4 million ($18.8m) in the year-earlier period.
Like Morse, Computacenter has attempted for years to shed its image as a ‘box-shifter’. For the first half of the current financial year, reselling revenues, at £1.25 billion ($2.2bn), were virtually unchanged from the previous year, despite a rise in sales volumes – the result of price deflation on commodity IT products. That has put pressure on margins in Computacenter’s core product logistics business. In addition, increases in IT spending in the financial services market were offset by a decline in government orders. Nevertheless, revenues from the company’s UK Managed Services business grew by nearly 19% over the period – enough to boost net profits by 8% to £23.4 million ($42.3m).
On the surface, first half revenues at Franco-Dutch IT services company Atos Origin looked stunning, up 72% to EU2.65 billion ($3.18bn). But that growth figure is not based on a like-for-like comparison: the latest figure includes the revenues of its 2003 acquisitions of KPMG Consulting in the UK and the Netherlands, plus the January 2004 purchase of Sema Group from Schlumberger; the previous figures were pre-acquisition. Masked by the 72% was an organic decline of 1.3%.
The acquisitions also sent costs at the company spiralling. The company reported a loss of EU22.6 million ($27.1m), compared to a net profit of EU24.3 million ($29.2m) in the year earlier period.
On a more specialist services level, the UK business transformation consultancy Axon turned in an improved set of numbers, with first-half revenues up 8.4% to £26.7 million ($48.3m). Net profits, meanwhile, rose 53% to £1.9 million ($3.5m).
The company, which operates across both public and private sectors throughout the world, works with companies that use SAP business applications as their strategic platform services. Strong demand for those applications have buoyed Axon’s business. In the three months leading up to 30 June 2004, SAP banked EU143 million ($172m) more business than in the same quarter last year.