Oracle may have to eat its words

Software leader Oracle Corp. has made a big deal about the US$1 billion it claims to have saved last year using its own software. The company was so excited, it promised to follow up with US$2 billion in savings this year.

Now it is finding that some promises are made to be broken.

The slowdown in the U.S. economy has cut into the database giant’s spending growth and, therefore, what is was able to trim from its expense line. It is now reassessing what its own software can do for it and a more realistic target is US$1.5 billion in savings, CEO Larry Ellison said in a recent question-and-answer session with reporters.

The final tally remains to be seen, he said, though he reiterated that the savings will be greater than last year’s.

The revision is significant for the Redwood Shores, California-based software developer. Oracle made last year’s US$1 billion in savings the central theme of its marketing message, implying that corporations installing its enterprise package of accounting, manufacturing sales force, procurement and customer-service software would see savings, too.

This year’s marketing message might have a more complicated delivery.

Oracle also used last year’s savings to bolster its bottom line. The US$1 billion in savings announced in June pushed its fiscal-year-operating margin to 40 per cent from 30 per cent a year earlier. Oracle had hoped for an additional 10- percentage-point margin improvement this year – a goal it will be forced to reassess.

Meanwhile, Oracle might have to continue its battle with naysayers who suggest that a good portion of last year’s savings came from cutting software consultants from its payroll.

In his comments to journalists, Ellison said a lot of uncertainty remains around the U.S. economy. In the software market, “it already feels like we’re in a recession” though the economy as a whole may avoid two quarters of negative growth, he said.

Although corporate customers continue to plan big software projects, it will be the end of the year or perhaps the end of the first quarter of 2002 before more-normal growth returns to the software business, he said.

That might increase the prospects for Oracle’s savings. Maybe then the software giant will have more savings to boast about.