Oracle plans industry focus for apps upgrade

Oracle Corp. is tailoring the next release of its business applications to specific industries and doubling the size of its application server sales force as it tries to wring more dollars out of the server software market.

In a meeting with financial analysts Wednesday, Oracle also reaffirmed its earnings forecast for the current quarter, saying it has yet to see the slowdown in spending that is affecting some other software vendors. And CEO Larry Ellison said he is on the prowl for further acquisitions.

The next release of Oracle’s E-Business Suite, version 11.5.10, will debut later this year with dozens of new functions for industries such as manufacturing, health care, aerospace and utilities. “We’ve had an intense focus on industry-specific functions for this release,” said Ron Wohl, executive vice-president for Oracle’s applications business.

For manufacturers, an area where the company is relatively strong, the suite will include new functions for transportation planning, international drop shipments and transactions based on RFID (radio frequency identification). It is also targeting health care, one of its weaker areas, and recently hired a former surgeon general of the U.S. Navy to build up its expertise, said Oracle co-president Charles Phillips.

Oracle also plans a “major functional and user interface upgrade” for its customer relationship management applications, which will provide more up-to-the-minute information about interactions with customers, Phillips said.

Oracle’s applications revenue grew two per cent in its 2004 fiscal year, ended May 31, although in the final quarter it declined six per cent. Its battle to acquire PeopleSoft appeared to have slowed sales at both companies, said David Cooke, a vice-president at IT services company Capgemini, who spoke on a panel at the meeting in Redwood Shores, Calif. He predicted an upturn for the rest of this year.

Oracle will also release an upgrade to its business intelligence tool, Discoverer, over the next several months, said Chuck Rozwat, executive vice-president for database technologies. Known internally as “Drake,” the upgrade will have a new interface that will help Oracle to better compete with Business Objects SA, Cognos Inc. and other specialty vendors, he said.

On the application server side, Oracle is doubling its field sales force to capitalize on what it sees as strong interest in the product. At the same time, however, some customers apparently have balked at its strategy of shipping the application server, portal server and integration server preintegrated on a single CD.

Although customers only have to pay for the software they use, some felt they were being forced to buy all of the products, Phillips said. As a result, Oracle will ship a new version of the product over the next 60 days that makes it easier for customers to install only the parts they want, he said.

Executives at the company were generally upbeat at the meeting. Chairman Jeff Henley said sales are off to a strong start for the current quarter, which ends Aug. 31, and Oracle is on track to meet its target of six per cent to nine per cent revenue growth and US$0.09 earnings per share. That contrasted with a spate of recent earnings warnings from PeopleSoft Inc., Veritas Corp., Siebel Systems Inc. and others.

Ellison portrayed the warnings as an omen of further consolidation in the software industry, something he has been predicting for some time. Customers don’t want to buy their products from numerous vendors and stitch them all together, he said. “This is no different from any other industry; it will consolidate like the railroad industry,” he said.

Oracle will speed that along by snapping up more companies, including some of its neighbors in Silicon Valley, Ellison said.

“I think we’ll have an opportunity to buy several companies that are right next to us — some of them run by Oracle people,” he said during a question and answer period with analysts. Siebel and Veritas are among the local companies run by former Oracle employees, although Ellison said he’s unlikely to attempt another big merger while Oracle is still battling for PeopleSoft, which is also run by a former Oracle executive.

Oracle will use acquisitions to add more customers, improve its technology and achieve greater economies of scale, Ellison said. As before, he predicted that Oracle, IBM Corp., SAP AG and Microsoft Corp. will be the leading vendors that survive the shake-out.

“Our strategy is to get bigger, which allows us to invest more in engineering and lower our prices….That’s how Microsoft does it and that’s how we should do it,” he said.

“Our goal is to make the Oracle database as cheap as possible to own,” he said later. “That means as few third-party products as possible, as little labor overhead as possible.”

The company sees growth coming from its application server business and from add-ons to its database product, particularly its Partitioning, Enterprise Manager and Real Application Clusters (RAC) software, which is used for building grids. The company had 4,200 RAC customers in fiscal 2004, up from 2,500 in fiscal 2003, Rozwat said.

Oracle’s begins its OpenWorld conference on Monday in Shanghai, where it’s likely to elaborate further on its product plans.

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