Laura DiDio, a senior business applications expert with the Boston-based Yankee Group, said that Oracle CEO Larry Ellison's three-year-long and running acquisition spree has been very successful in terms of increasing the company's revenue and profitability and overall footprint in the IT market. But, she added, confusion about Oracle's product roadmap remains among Oracle's ever-growing customer base.
"We haven't heard an outcry from [dissatisfied] customers, but there is confusion which is to be expected in a thing like this," DiDio said. "If [Oracle] really wants to challenge Microsoft and SAP for intergalactic domination […] they have to put out a very specific roadmap, and we haven't seen that yet. This is something that they need to do to reassure customers, whether it's customer relationship management (CRM) customers, whether it's the traditional database customers or any of the new stuff."
Oracle has promised to unveil the first round of Fusion applications -- apps acquired in the purchases of PeopleSoft Corp., Siebel Systems Inc. and 19 others over the past three years that run on the firm's Fusion middleware -- in 2008. But with all of this "digestion" going on, DiDio says the Yankee Group isn't positive that Oracle will be able to deliver the apps as scheduled.
Another drawback to Oracle's acquisitions tear comes on the public relations and marketing front, the analyst said. With any acquisition spree, companies risk throwing too much at their existing and potential customers all at once. The press, she added, tends to focus on a few major entities, and certain, possibly important pieces of the puzzle, such as smaller point acquisitions which open Oracle up to new industry verticals, can get lost in the shuffle, leading to more confusion.
"I think what you have to worry about if you're Larry, because he has this in-your-face personality, is that he has thrown down the gauntlet to all of his competitors [and is] fighting a war on too many fronts," the analyst said. "If I were him, and I'm not -- his bank account looks good to me -- I'd think that now you have to retrench a little and not be so strident."
A successful strategy
Oracle's acquisition strategy may have gotten off to an inauspicious start with the bloody tug-of-war for customer relationship management giant PeopleSoft, but it has certainly rebounded and the proof that is in the numbers, DiDio said.
According to DiDio's research, Oracle's stock price is up 34% in the last year, its profit margin is standing at just under 24%, the quarterly revenue growth is a healthy 25%, the quarterly earnings growth year over year is at 27.2%, its return on assets is over 12.5% and the return on equity is just over 26%.
"The return on assets and return on equity is basically how you judge the management effectiveness," she explained, adding that the numbers overall are "very good."
Despite the positive numbers, many major Wall Street firms have downgraded Oracle over the last year from an outperform to a market perform, which is more in line with market expectations, or from recommending that folks buy Oracle stock to recommending that they simply hold the stock they currently own. DiDio pointed out that one Wall Street firm, William Blair & Company, L.L.C., went as far as to downgrade Oracle to underperform status.
"They're just showing some natural caution" in reaction to the acquisition strategy, DiDio said.
Overall, DiDio said she credits Ellison, whom she likened to Alexander the Great, with the success of the acquisition strategy, and Oracle president Charles Phillips with making sure that Oracle's sales organization maintained continuity throughout the purchasing spree.
"What Oracle has done by buying all of these companies is that they've boosted their profitability, they're boosted their market cap and in one fell swoop managed to do what otherwise would have taken them years to do -- suddenly they are market leaders in a very diversified portfolio," she said.