Through no fault of its own, on March 19, enterprise software-maker Oracle, found itself at the center of a massive brouhaha. A Reuters news headline was mistranslated from English to Arabic, resulting in a headline stating that Oracle’s operations had shut down in the Middle East and Turkey because of the war. The incorrect headline was picked up by Al-Jazeera television, causing considerable consternation among businesses in the region.
Oracle confirms that its operations in the Middle East and Turkey are functioning and trading as normal. “We are committed to provide our customers with uninterrupted services to ensure that their mission critical applications are well supported,” said Husam Dajani, vice president, Oracle Middle East. “Oracle consulting continues to engage customers and deliver on committed process despite the political situation.” Be that as it may, the Reuters report, “Oracle says Middle East sales grind to near halt,” did have some important points to make.
Oracle’s Europe, Middle East and Africa (EMEA) region saw sales of new licenses decline sharply in its fiscal third quarter, ending Feb. 28.
“Business in the Middle East, including Turkey and Israel, has come to an almost total halt at the moment,” Oracle’s European president, Sergio Giacoletto, told Reuters. Giacoletto said business was doing “very well” in December and January and then was “down dramatically” in February.
The drop in Oracle’s overall EMEA business is noteworthy because it was the first region in which the company saw growth in the previous quarter, breaking with a long string of quarters in which license revenues declined.
License revenues are only a part of overall revenues, which also include services and updates, but they are tracked closely by investors because they are the growth engine for the future. New software license revenues in EMEA declined by 14 percent in local currencies. A strong euro versus the dollar, however, meant that dollar sales were two percent higher at $270 million. This contrasts with the previous quarter, ending November, when new EMEA license sales in local currencies rose eight percent.
Middle East sales were hurt by the looming threat of a war in Iraq, but “near halt” in sales is not total shut down. Oracle stated that several Middle East customers purchased or went live with implementations of Oracle’s Applications during Oracle’s third quarter including: Bahrain-based Batelco, Sokna Port, Saudi Arabia’s National Development Company (NADEC), Egyptian American Bank, and Qatar’s Faisal Bin Qassim Al-Thani and Sons Holding Company.
Oracle does have to work a lot harder to bring in revenue. Reuters found that the company is focusing more on smaller customers and that means more transactions are needed to achieve the same sales levels. “There’s clearly price pressure because the market is not growing and the number of clients is rising, but the average size of deal is smaller,” said Giacoletto.
According to Giacoletto, Oracle continued to lower the prices of its software by packaging it better. In addition, he commented, easier and cheaper installation of its traditionally complex software programs helped it to compete better with Microsoft.
Giacoletto said he foresaw no upturn, in contrast with the last quarter when he stated that EMEA could grow marginally and was doing well compared with other regions because Europe had not over invested in technology during the Internet bubble years. “My view is that the total software market in 2003 will continue to be flattish,” he said, adding that Oracle aimed to increase its market share.
IDEAadvisor, a global provider of independent, actionable research for the investment community, reacted to the Reuter’s story: “With the military campaign against Iraq under way, a Reuters report on Oracle’s Middle East businesses is shedding much needed light on how software sales will fare during the war.”
According to the IDEAadvisor analysis, “At first glance, things don’t look good...Since licensing revenues in software firms are typically back-loaded, with bulk of sales coming in the last days of a quarter, Oracle escaped the war by a matter of good timing…Not so for other companies who work on calendar quarters. Most companies will see their quarter end on March 31, a mere 11 days after the start of the war…We believe companies with calendar quarter ending March will see a disproportionate risk to their top and bottom lines, as the Middle East, a source of strength for at least one of the top software makers in the world, will turn negative.
“In accordance, we believe that despite the sell-off of Oracle shares on Wednesday, due to its cautious tone on the coming quarter, the software-maker should provide an area of safety for investors exposed to other software companies that have sales in the Middle East and operate on calendar quarters.” — MYBI