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Oracle Corporation

FOUNDED: 1977

Contact Information:

HEADQUARTERS: 500 Oracle Pkwy
Redwood Shores, CA 94065
PHONE: (650)506-7000
FAX: (650)506-7200
TOLL FREE: (800)672-2531
EMAIL: investor@us.oracle.com
URL: http://www.oracle.com

OVERVIEW

Founded in 1977 by computer programmers Lawrence J. Ellison and Robert N. Miner, Oracle Corporation is today the world's largest supplier of information management software and the second largest independent software company in the world, second only to Microsoft Corporation. With revenue of nearly $10.9 billion in fiscal 2001, the company has expanded beyond its original database products into a variety of business applications and online services, including human resource and supply chain management applications.

Headquartered in Redwood City, California, Oracle was established by founders Ellison and Miner to take commercialize the technology for a relational database, the company's core product. That technology, as well as new Oracle applications developed in the years since its founding, can be found in nearly every industry around the world today. Of the Fortune 100 companies, 98 use Oracle software in their everyday operations. The company was the first software company to develop and market 100 percent Internet-enabled enterprise software across its entire product line.

For aspiring computer technology entrepreneurs, colorful Oracle Chairman and CEO Ellison has few words of encouragement. In an interview with the Financial Times in mid-December 2001, he offered this advice: "Get out of the tech business. It's too late. There won't be any more big companies. Our business in on its way to being like the car business; it's going through a massive consolidation. There is this fantasy that the computer industry will always be young. I think that's ridiculous. Companies have been disappearing at a very high rate; there's a very high level of extinction. You may have a cool piece of technology like a new chip design or a cute little switch. But the days of building a giant new tech company are over. Try to build a giant new auto company. We're going into a much more mature industry. Every industry matures. Is the technology industry unique; will it ever mature? Sure, it will mature. The railroads were like this; the oil industry was like this."

COMPANY FINANCES

Fiscal 2001 (ended May 31, 2001) saw a significant slowdown in revenue growth for Oracle. Against a backdrop of worldwide economic recession, the company posted an increase in sales of 7.2 percent, up to almost $10.9 billion from just over $10.1 billion in fiscal 2001. Revenue in fiscal 2000 had jumped to $10.1 billion from $8.8 billion in fiscal 1999, an increase of about 14.8 percent. Even more alarmingly, Oracle's profit in fiscal 2001 dropped to about $2.6 billion, down sharply from almost $6.3 billion in fiscal 2001. Net income in fiscal 1999 was __BODY__.3 billion. Despite their disappointment with fiscal 2001's performance, company executives expressed optimism that the worst was over. Jeff Henley, Oracle's chief financial officer, said: "Hopefully we hit the bottom in our fiscal fourth quarter." Chairman Ellison also expressed cautious optimism. "Barring any further decline in the economy, we think our sales will pick up. . . .We're cautiously optimistic that we might beat those numbers."

A recovery in sales and profit proved elusive, however. Oracle's revenue for the third quarter of fiscal 2002, ended February 28, 2002, slipped to $2.23 billion, down 17 percent from the $2.7 billion reported in the same quarter of fiscal 2001. The company's net income for the quarter was down to $507.9 million from $582.7 million the previous year. Perhaps the most alarming development from the quarter was a drop of 30 percent in the company's sales of software licenses, the sharpest decline during four consecutive quarters of falling software sales. Oracle's management blamed the slowdown almost exclusively on a worldwide recession that prompted businesses around to cut back their spending on software and other technology.

ANALYSTS' OPINIONS

Despite some misgivings about Oracle's financial rough patch in fiscal 2001 and 2002, most security analysts remained essentially bullish on the company. The consensus of analysts in early June 2002 was positive, with five of 35 analysts rating Oracle stock a Strong Buy, 15 rating it Buy, and another 15 advising investors to "hold" the stock. As to its more immediate problems, analysts did express concern about Oracle's precipitous decline in software licensing sales during the third quarter of fiscal 2002. Since it was in the same quarter of fiscal 2001 that the company's softening sales first became evident, the fiscal 2002 quarter should have been "a layup, and they missed the lay-up, so everyone is really surprised," said Mark Verback, an analyst with Think Equity Partners.

Oracle executives have insisted that the company's slowdown in sales was almost entirely attributable to the worldwide economic recession. Most analysts agreed that the recession was a significant factor but suggested that the company had created some of its own problems. Particularly damning was this observation from analyst Robert Austrian of Bank of America Securities: "About 80 percent of Oracle's problems are from self-inflicted wounds, and 20 percent are from the economy."

The spring of 2002 brought persistent reports that Oracle had lost its lead in total database sales to IBM, which bought Infomix in 2001. According to reports from Dataquest, IBM's revenue from database sales grew to $3.06 billion in 2001, compared with sales of $2.83 billion for Oracle. Dataquest analyst Betsy Burton said she believed that IBM had edged ahead of Oracle on the strength of its purchase of Infomix. "They bought market share." Oracle CFO Jeff Henley cautioned analysts against jumping to conclusions on the basis of limited data. "You can't take a one-year snapshot and say Oracle is losing share," he said.

HISTORY

Oracle Corporation was born in 1977 when computer programmers Lawrence J. Ellison and Robert N. Miner pooled their __BODY__,500 savings to rent office space in Belmont, California, and start a company dedicated to the development and marketing of database management systems (DBMS) software. The fledgling company's first big contract called for the development of a special database program for the Central Intelligence Agency. While researching the CIA project, Ellison began looking at some of IBM's work on relational databases, which in theory would allow computer users to retrieve corporate data from virtually any form. IBM had developed a computer language called Structured Query Language (SQL) that would tell a relational database what data to retrieve and how to display it. Ellison and Miner then set out to develop an SQL relational database software program for use on Digital minicomputers and other hardware. Oracle's first relational database management system (RDBMS) was first marketed in 1979, two years after IBM debuted its first RDBMS program. Oracle quickly became profitable. By 1984 the company posted annual sales of almost $2.5 million. Encouraged by its success domestically, the company began reaching out beyond to markets outside the United States. Its first foreign subsidiary, Oracle Denmark, was opened in 1982.

Competition in the market for DBMS software began intensifying in the early 1980s, but Oracle managed to keep its edge on the strength of its reputation for innovation and its aggressive advertising style. By 1985 the company's annual sales had climbed to more than $23 million. The following year saw an even more impressive upsurge in revenue, as sales climbed to $55.4 million. That same year, the company made its initial public offering of stock. Never one to shy away from self-promotion, Ellison later that year publicly touted Oracle as the fastest growing software company in the world, citing its record of revenue growth of 100 percent or more in eight of its first nine years. By the end of 1986, the company's customer base had swelled to some 2,000 mainframe and minicomputer users in a wide range of industries, including aerospace, automotive, pharmaceutical, and computer manufacturing, as well as a number of government agencies. Also, by the end of 1986 Oracle's network of foreign sales subsidiaries had grown to 17, marketing the company's products in 39 countries.

Largely on the strength of Oracle's selection to supply the relational DBMS software for most major computer manufacturers, the company in 1987 topped the $100-million mark in revenue and officially became the world largest database management software company. As more and more software companies used Oracle products as a platform for their applications, the company in 1987 established its VAR (Value-Added Reseller) Alliance program, designed to build cooperative selling and product-planning alliances with other software producers. The following year Oracle introduced a line of accounting programs for corporate bookkeeping and its first family of computer-aided systems engineering (CASE) application development tools.

When Oracle announced a sharp jump in earnings but essentially flat net income for the third quarter of fiscal 1990, Wall Street analysts turned cool to its former darling. Shortly thereafter, a handful of Oracle's shareholders sued the company, charging that it had made false and misleading forecasts of its earnings. Matters were exacerbated a couple of months later when Oracle announced record revenue of $970.8 million but a profit of only $117.4 million, below the company's own estimates. Later that year Oracle reported its first-ever quarterly loss, and the company's stock plummeted to $6.25 a share, bringing the six-month loss in the stock's market value to more than $2.7 billion. By the end of fiscal 1992, Oracle's earnings had begun to rebound. Only two years later, the company's annual sales had topped the $2-billion mark. By 1997, annual sales had skyrocketed to $5.7 billion. Continuing its long record of innovation, Oracle in 1998 launched Business Online, the first hosting service for enterprise applications to be run over the Internet, and offered full Web deployment of all its applications. The following year Oracle became the first software company to integrate Java and XML (Extensible Markup Language) into an application development tool. For fiscal 1999, the company posted a profit of nearly __BODY__.3 billion on revenue of $8.8 billion.

In fiscal 2000, ending May 31, 2000, Oracle's revenue soared 14.8 percent to more than $10.1 billion, and the company reported a profit of nearly $6.3 billion. The worldwide economic recession and other factors slowed the company's revenue growth in fiscal 2001, with sales reaching nearly $10.9 billion, but net income was down to $2.56 billion.

STRATEGY

Using Internet technology, Oracle is in the process of transforming itself into an e-business. Its corporate strategy calls for the company to (1) streamline and integrate its entire organization; (2) globalize its business systems; (3) simplify and standardize business practices; (4) implement a complete suite of fully integrated products; (5) base corporate decisions on information that flows continuously from the sell side to the inside to supply and back again; and (6) provide self-service applications to customers and employees.

The rationale for implementing a complete suite of fully integrated products is intended to bring to an end the custom of paying once to buy software, again to have expensive integration consultants to squeeze it into a unique information architecture, and still again to endlessly customize it to accommodate outdated business processes. As for supplying self-service applications to customers and employees, it is hoped that this will lower operating costs and improve accuracy.

Oracle believes the transformation into an e-business allows an organization to make the best possible use of its capital expenditures by permanently reducing operating costs and eliminating complexities from its business processes and infrastructure.

Already, the company's move into the new economy through its transformation to e-business has resulted in an improvement of greater than 10 points in its operating margin. According to an update on its Web site, "every improvement Oracle has made was a result of the same strategy. The company standardized its business processes and moved to the Internet, consolidated all separate databases into a single global database, and unified all separate computer systems using E-Business Suite. Shared information enabled people to communicate more clearly and work together more effectively. Since the organizations were interdependent, groups using those systems become dependent upon one another. Along with that interdependency came cooperation among groups, specialization, and economies of scale. When Oracle globalized its business, operational inefficiencies began to melt away."

INFLUENCES

In the wake of the terrorist attacks on the World Trade Center and Pentagon on September 11, 2001, software customers became increasingly concerned about security and reliability. In an interview with Richard Waters of the Financial Times in December 2001, Oracle Chairman Lawrence J. Ellison shared his thoughts about how the shift in consumer sentiment might affect Oracle. "Oracle's tag line used to be 'Oracle: Software powers the Internet.' Now it's 'Oracle: Unbreakable.' Our heritage is in military intelligence, building military systems. They're not allowed to break; they're not allowed to lose data. That's much more important now."

Asked by Waters what he saw beyond the Internet as a method of deploying e-business applications, Ellison said: "Nothing. Nothing. The basic architecture of the telephone network hasn't changed for 100 years. [The basic architecture of the Internet] won't change. We will have wireless connections to the Internet, it will be cheaper, but it will still be the Internet."

CURRENT TRENDS

Many software companies in recent years have marketed "best-of-breed" systems combining the leading software of each type into one system. Scott R. Smith, interviewing Oracle CEO Lawrence J. Ellison for American Way magazine, asked how Oracle's business software suites could compete effectively with "best of breed" since some of the individual applications integrated in the Oracle suites were not really the best available. Ellison replied: "People want you to engineer everything to work together. In fact, SAP was the first ERP company that had all the pieces of the back office put together. We're the first to have the back office, the middle office, and the front office put together effectively, automation extending from suppliers through the legal department and contracting to the customer. History has shown that the more complete the suite is, the more successful you become: It trumps 'bastard-breed.' The cycle always begins there, but ultimately the specialist companies die out. That's the way evolution works."

PRODUCTS

Oracle's product lineup is broken into a number of different segments, the core of which is its relational database management system (RDBMS), which in turn is the key component of the company's Internet platform. The RDBMS system enables the storage, manipulation, and retrieval of relational, object-relational, multidimensional, and other types of data. In the spring of 1999, the company introduced Oracle8i, a database specifically designed as the foundation for Internet development and deployment. The Oracle8i database extended Oracle's technology in the areas of data management, transaction processing, and data warehousing. In June 2001, Oracle introduced Oracle9i, which was designed to run any packaged application with unlimited scalability and reliability across multiple computers clustered together.

Another major segment of Oracle's product lineup is the Oracle International Application Server 8i, introduced in June 2000, which in October of that year was joined by Oracle9i Application Server, an open software platform that makes it easier for developers to build Internet Web sites and applications.

Other important products in the Oracle product mix include the Oracle Internet Developer Suite, a complete and integrated suite of development tools for rapidly developing Internet database applications and Web services. The company also offers Oracle E-Business Suite Release 11i, a fully integrated and Internet-enabled set of Customer Relationship Management (CRM) and Enterprise Resource Planning (ERP) software applications for the enterprise. The E-Business Suite is available in more than six platforms and approximately 30 languages.

In addition to its lineup of software applications, Oracle provides a broad range of related services, including consulting, support, education, and online services.

CORPORATE CITIZENSHIP

Oracle clearly recognizes its corporate responsibilities to the communities in which it operates. It seeks to fulfill those responsibilities through programs in the following areas: education, charitable contributions, volunteerism, community partnerships, and diversity and compliance. The company's educational initiatives include the Oracle Help Us Help Foundation, which provides computer equipment to schools and youth organizations that provide educational service in economically challenged communities, and Oracle Academic Initiative, supplying software, curriculum, training, and Oracle certification to colleges and universities. Other educational initiatives include Think.com, a collaborative learning environment provided free of charge to primary and secondary schools; Oracle Internet Academy, which provides technology skills training to high school students; and Oracle Workforce Development Program, which makes software, curriculum, training, and certification available to workforce development communities.

In the realm of charitable contributions, Oracle financially supports the efforts of nonprofit organizations working in the following fields: environmental protection; protection of endangered animals; K-12 math, science and technology education; and medical research. To stimulate volunteerism among its worldwide employees, the company in 1991 established Oracle Volunteers. Its purpose is the formalization of volunteer opportunities for company employees. Oracle Community Partners provides support to local and state agencies; energy, planning, and other commissions; and chambers of commerce. Oracle's Diversity and Compliance program is designed to ensure that the company complies with federal, state, and local regulations and promotes a work environment that values diversity and is inclusive of all employees.

GLOBAL PRESENCE

Oracle is a truly international operation with subsidiaries in some 60 other countries around the world. Most of those subsidiaries operate not only in their local country but also in neighboring countries where Oracle has no foreign marketing subsidiary. Foreign countries and U.S. territories in which Oracle operates include Argentina, Australia, Austria, Barbados, Belgium, Brazil, Canada, Cayman Islands, Chile, Colombia, Costa Rica, Croatia, Czech Republic, Denmark, Ecuador, Egypt, Finland, France, Germany, Greece, Hong Kong, Hungary, India, Indonesia, Ireland, Israel, Italy, Japan, Malaysia, Mexico, the Netherlands, Netherlands Antilles, New Zealand, Norway, Peru, Philippines, Poland, Portugal, Puerto Rico, Saudi Arabia, Singapore, Slovakia, Slovenia, South Africa, South Korea, Spain Sweden, Switzerland, Thailand, Turkey, United Arab Emirates, United Kingdom, U.S. Virgin Islands, Uruguay, Venezuela, and Vietnam.

EMPLOYMENT

As of May 31, 2001, the end of Oracle's 2001 fiscal year, the company employed a workforce of almost 43,000 people, including 29,422 in sales and services, 1,230 in marketing, 7,926 in research and development, and 4,349 in general and administrative positions. Of these employees, 22,008 were located in the United States, with the remaining 20,919 employed in some 60 other countries.

SOURCES OF INFORMATION

Bibliography

Baertlein, Lisa. "Oracle Edges Past Expectations, Sees Rebound." Reuters Business Report, 19 June 2001.

"Business Summary: Oracle Corporation." Multex Investor, Available at http://www.marketguide.com.

Liedtke, Michael. "Oracle Reports 13 Percent Drop in Profit, 30 Percent Decline in Software Sales." AP Worldstream, 14 March 2002.

"Oracle Corp.—History." Gale Business Resources, Available at http://galenet.galegroup.com/servlet/GBR.

"Oracle Corporation." Hoover's Online, 2002. Available at http://www.hoovers.com.

Oracle Corporation 2001 Annual Report. Redwood Shores, CA: Oracle Corporation, 2001.

Oracle Corporation Home Page, 2002. Available at http://www.oracle.com.

Pain, Steve. "E-business: Oracle Is Trailing IBM, Say Figures." Financial Times, 14 December 2001.

Smith, Scott S. "The Oracle Speaks." American Way, 1 May 2002.

Waters, Richard. "Answers from Oracle's Larry Ellison." Birmingham Post, 14 May 2002.

For an annual report:

on the Internet at: http://www.oracle.com or write: Investor Relations, Oracle Corporation, 500 Oracle Parkway, Redwood Shores, CA 94065

For additional industry research:

Investigate companies by their Standard Industrial Classification Codes, also known as SICs. Oracle Corporation's primary SICs are:

2731 Book Publishing

3571 Electronic Computers

3572 Computer Storage Devices

7371 Computer Programming Services

7372 Prepackaged Software

7379 Computer Related Services, NEC

Also Investigate companies by their North American Industrial Classification System codes. Oracle Corporation's primary NAICS code is:

511210 Software Publishers