Chicago Software Licensing Lawyer & Attorney : Sam Conforti Law Firm : Master Service Agreements, Negotiations, Outsourcing : Cook County, Illinois

It is important to note that Oracle does not have the familiar 12/31 year end, but rather a 5/31 fiscal year end.  Ahead of their conference “Oracle OpenWorld 2008” held in San Francisco this year, Oracle released a wave of glowing financial successes for its first quarter for 2009.

·         Net Income increased 28% to $1.1 Billion

·         Revenues increased 18% to $5.3 Billion

The second quarter is more in question.

·         Non-GAAP revenues could fluctuate anywhere between a 12-15% increase or drop as low as only a 9% increase due to currency fluctuations

·         Non-GAAP EPS should be around 26¢ due to earnings split between higher and lower tax jurisdictions.

The forecast for new software license revenues are also susceptible to the fluctuating currency markets with estimates at 5% - 15% without fluctuations and 2% to 12% if fluctuations are taken into account.  Kenneth Chin, and analyst for Gartner, focused on this broad range and stated:

"Foreign currency had a plus seven percent impact on earnings this quarter, and they see a minus three percent impact for the next quarter, which can be fairly significant.  There's nothing to say that, if the dollar moves more quickly and becomes stronger, that the negative impact wouldn't hit five percent or more."

Fifty percent (50%) of Oracle’s business is license revenue and maintenance fees.  The fastest growing part of their business is middleware.  Larry Ellison, Oracle CEO, is confident that they have or soon will replace IBM in this market space.  For a more complete commentary on the second quarter’s outlook and beyond see Richard Adhikari’s article Oracle Sees Tougher Days Ahead. 

With a broader portfolio of software products to bring to the market the emphasis this week at the San Francisco conference will be on the $8.5 billion purchase of BEA.  The BEA middleware products “are key to Oracle's service oriented architecture (“SOA”) strategy.”

Oracle’s next major release will be 11g, expected by the end of the 2009 fiscal year.  BEA will be an integral part of its latest Web and SOA platforms release. 

Also of note is Oracle’s Green Program and its virtualization initiative.  To read the details on the tremendous increase in savings on these two programs and the Integration of the BEA software products into Oracle’s latest offerings see Oracle's Big Show will be BEA's Coming Out Party.

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Richard Adhikari reports in InternetNews.com that SAP plans to move aggressively forward with its SaaS offering, Business ByDesign, and is targeting the SMB customer in his article SAP to Innovate Heavily in SMB On-Demand Suite - updated - Business intelligence to pervade enterprise software giant's forthcoming products.  It appears from some of the comments quoted from the SAP executive suite that the word “aggressive” is only the tip of the iceberg:

Henning Kagermann, co-CEO stated:

“When you come to challenging times, you have to take risks. Business ByDesign is not just about product, we also want to focus on profitability, and in the volume business you have to do a lot of innovation to make the business profitable”

Jim Snabe, head of SAP's business solutions and technology, stated further:

“You can look at it from two angles. One is how to convert money into ideas; the other is how to convert ideas into money”

In addition to the predicted new innovation of this SaaS offering which includes CRM, SAP will integrate its Business Intelligence (“BI”) technology into the business suite as a direct result of its purchase of Business Objects last year.  This will bring the analytics portion into the new offering.  Customers will be able to analyze their historical projections as well as future projections.

So when should we expect this new business suite to be rolled out.  SAP says to look for it by next year.  Just exactly when next year isn’t quite clear.

In related SAP news:  In a move to emphasize its focus on profitability and a bid to match the pricing of Oracle, its chief competitor, SAP customers are none-too-happy with the recent price increase for its enhanced maintenance “Enterprise Support”.  For the full story see SAP CEO Defends Price Hikes as Customers Gripe - In its drive to become more profitable, has the enterprise software vendor stirred up a hornet's nest?  Kagermann defended his company’s actions by stating:

"We're offering a new service which is much larger than before, has a certain value and a certain price. The cost for us is higher, and so we believe it's a fair price."

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As many of you may know already May 4th to 7th was Sapphire 2008. This year it was held in Orlando, Florida. What is Sapphire? Well, it is SAP’s annual international customer conference. It is the place where the enterprise’s decision makers come to see the latest business solutions that SAP has to offer. There are a plethora of announcements and it is difficult to keep all the facts and details straight in one’s mind. I have listed below what I found to be a few of the more noteworthy announcements with a brief summary and if any of these are of interest follow the links for more details.

First on the list was the pre-conference announcement. My guess is that this was sort of a primer for things to come. The “mobile workforce”, many of whom are users of the ever popular hand-held device from Research in Motion (“RIM”) known as the Blackberry, may be interested to know that they will have access SAP’s CRM functionality in the coming months. The plans are to eventually integrate the rest of SAP’s functionality into the handheld device. As a Blackberry user myself, I think the implications of this could be enormous. Just the mere fact of being able to send and receive my emails wherever I happen to be is a huge advantage to me. SAP and RIM are talking about a mobile workforce now with access to all parts of the enterprise including order applications and inventory management. A more detailed description can be found in the Internews.com article SAP Is Wooing the BlackBerry CRM Crowd.

The next announcement I found to be of interest was that Rimini Street, the low-cost third-party provider of support, will be providing support for the SAP R/3 ERP suite. The concerns about SAP pulling support for its older versions was alleviated a bit when Rimini Street pledged to continue supporting the older versions without any upgrades until the year 2020. The cost savings for the R/3 user base could be significant. SAP had recently announced that it would raise its maintenance fees from 17% to 22% to keep up with the industry standard, particularly Oracle. Now with the availability of support from Rimini Street, CEO Seth Ravin, boosts, “Most of our customers are saving on average 70 percent against overall maintenance costs and at least 50 percent on their annual maintenance bill. We cut customers' costs in half and still make a very hefty profit." Ravin’s approach is that R/3 users don’t want to move to the next platform since “they spent years and a ton of money to get it working right and,…there's nothing that justifies the cost of upgrade, disruption and opportunity cost…” To read more see Rimini Street Adds SAP, Passes on TomorrowNow.

Following the Rimini support announcement, SAP made another announcement concerning its own Enterprise Support. This new approach to support from SAP will be more of a holistic approach and not the usual patches sent to fix bugs in the software. SAP will be supporting SAP solutions as well as non-SAP solutions and focus its attention on SOA. To learn more about the components of this Enterprise Support offering from SAP read SAP Beef’s Up Enterprise Support. This article also contains Oracle’s perspective on SAP’s offering and how it competes with SAP.

The last announcement coming out of Sapphire 2008 that I will discuss are the two add-ons that will assist in the design and execution of new business processes without the need for new code development, SAP NetWeaver Business Process Management (BPM) and SAP NetWeaver Business Rules Management. With close to 39,000 NetWeaver deployments, these new add-ons continue to emphasize SAP’s push into SOA. SAP's NetWeaver BPM will provide the ability to implement and manage complex business processes. In essence it simplifies the implementation of an SOA environment. As stated in SAP Add-Ons Aim to Simplify BPM for NewWeaver, “NetWeaver BPM's unified modeling capabilities mean that a single version of a business process will be available throughout an enterprise, and its users will be able to edit it and make changes without losing details in translation.”

The above discussion is only a sample of the announcements that came out of Sapphire 2008.

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SAP unveiled nine new software packages that allow the monitoring and response to business information from any format or application. Three of the nine new offerings are targeted to the SMB market space. This all stems from SAP’s purchase of Business Objects (see post 12/21/07 in this Blog SAP Merges with Business Objects). SAP’s CEO, Henning Kagermann, stated:

Our key competitive differentiator is that we're building a portfolio on the most open platform. We are the only one that can offer business performance optimization in a closed loop.  At the end of the day, you have to take immediate action. Our business suite and business intelligence close the loop. You have faster and better insights and you can transform it immediately into actions.

Is this rollout all in response to the current activity now taking place in the industry? As I alluded to in my post of 1/9/08 What’s Next for ERP in 2008, Larry Ellison has not and will not sit on the sidelines as these mergers and new products are rolled out to the customer base. Just this week Reuter’s reports that Oracle has finally succeeded in its bid for BEA.

Kagermann addressed the issue of growth and competition in the industry stating:

You never in life should exclude an opportunity in business. The question is where is your priority.  Growing through organic growth is No. 1 for SAP.  If there's a unique opportunity to expand our opportunities, we will do it.  These are things you can't plan ahead and sometimes you have the opportunity and must take advantage of it.

SAP plans to integrate functionality from Business Objects into its Saas offering, Business ByDesign. SAP’s 2007 operating margins were down by .8% due mainly to its approximate half a billion dollar investment in getting Business ByDesign to market.

To read the full article click here

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As customers demand more from Web 2.0 applications and software vendors scramble to meet these demands, we should expect to see more mergers.  The assembling of such technologies as “instant messaging, Web conferencing, email, desk phone, mobile phone, blogs, and RSS feeds” has proven to be an overwhelming task.  A way to provide such technologies without losing some of the functionality which makes these technologies so appealing is to merge or purchase smaller niche companies that have the new emerging technologies already in hand.  Larry Barrett in his article in InternetNews.com reports on the most likely scenarios to come in 2008.  The companies to watch will be those with established expertise in data management, business intelligence and analytics and security.  The candidates include Informatica and i2 Technologies.  Regarding this anticipated consolidation, Barrett cites HP’s CEO Mark Hurd:

“I think you'll see continued industry consolidation and see more and more vertical integration.  It could accelerate in the next year or two if the right alignment of players were to occur ... I think potential M&A opportunities will rise to the top.”

And what about the big players in the ERP arena?  Is a purchase of SAP a possibility?  SAP’s co-founder and chief of its supervisory board left the door open a bit when he responded to such an occurrence by the likes of IBM, Microsoft, or Google stating, “If shareholders think that a combination, and not independence, is better, then it will happen.”  Barrett points out some of the key factors involved in any proposed merger with the world’s largest business applications vendor: 

• SAP’s market cap is $63 billion.  Microsoft would be an expected suitor.  It has the money.  The antitrust issues would require Herculean efforts and thus make such a combination unlikely.

• Google could afford it, but the corporate cultures are so divergent that this is a limiting factor.

• IBM seems to be the one.

Barrett cites Peter Goldmacher, an analyst with Cowen & Co.

“As big as SAP is, they're becoming a niche vendor and I think Oracle is hurting them and hurting IBM.  Both of these guys need each other.  And there's not a better fit. You'd have the No. 1 applications company and No. 2 database company competing against Oracle, which is No. 2 in applications and No. 1 in database.”

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