The Village View

Thursday, September 21, 2006

A Reminder of the Facts

You see it's not just little ole subjective me. Finally somebody on the sell side is pointing out that revenues of Oracle and combined companies are actually down from a year ago. Also, provided clarity on a few of the other tidbits that were thrown out on the call.

This is from a Citigroup UK research report on SAP entitled, "A Reminder of the Facts" (bolding is mine)


* Oracle: Questionable Organic Growth — ORCL (ORCL.O - US$16.13; 1M) stated on its 1Q07 earnings call that it was "rapidly taking application market share" based on its headline 80% licence growth rate. However, pro forma licence revenues of the combined business were $249m in 2005 and thus licences have actually declined c8% y/y.

* SAP Product Roadmap on Schedule — ORCL also stated that "they've [SAP] just announced that they are delaying the next version of SAP application until 2010". The implication is that ORCL will have a 2-year product lead with Fusion. We think this is just not correct – SAP is on track to deliver the BPP in 2007 and continues to hold a 2-3 year product lead across its entire product portfolio.

* Underlying Market Resilient — What ORCL's results do show is that enterprise spending is robust. The better proxy for market demand is the infrastructure/database business which grew 15% and is less distorted by acquisitions. This maintained the improvement witnessed in ORCL's FY4Q06 and is a positive sign for the market and possibly SAP in the current quarter.
* SAP is the Axe of the Sector — ORCL's 12-month rolling GAAP EPS have grown 10% CAGR since CY4Q04 (pre PSFT acquisition). If SAP had spent $14.6bn on share buy-backs (ORCL's acquisition spend) over the same period, its EPS CAGR could have been 32%. Like-for-like SAP has shown it is creating more shareholder value than ORCL and this supports our view that it should trade on a premium rating.



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