SAP Sees Business as Usual; Oracle - Yay or Nay?

Brian.oco 0 314 Views

Trying, ever so hard, to find some good news amidst the doom and gloom on Wall Street.

At least the market went up for a second straight session, with the DJIA up 400 points on Monday trading; that after rising 500 points last Friday. Investors seemed cautiously optimistic about the Federal Reserve/U.S. Government's plan to bail out Citicorp to the tune of $300 million. And one trader, perhaps suffering from a nasty case of irrational exuberance, thought that the stock market had finally found its bottom. I won't go that far, but two straight days of triple-digit gains on Wall Street is worth popping a cork or two, no?

Perhaps some investors noticed that SAP AG is somewhat serene about global business decisions. A top exec told Reuters last Friday that the downward economy hasn't "gotten any worse" since October. "There's business out there," says SAP co-CEO Leo Apotheker. "We just need to continue to move ahead." The SAP comments, coupled with HP's stronger-than-expected Q4 earnings picture, are the best news the tech sector has gotten in weeks (okay, feel free to throw Jerry Yang's resignation into the mix).

Investors will get a better sense as to where tech stocks are headed after SAP rival Oracle Corp releases results next month. Oracle's stock price rose 6.4% today, perhaps due to the SAP sentiments, but not everyone is convinced that buying Oracle is such a great idea.

One highly-followed tech analyst, Barclay's Israel Hernandez, cut his price target on Oracle from $27 to $22. He says that the software giant is still in the middle of a huge cost-cutting campaign and that the slowdown in IT spending will hold Oracle back next quarter. He also slashed Oracle's 2009 earning estimate to $1.44 per share from $1.55 per share, while cutting the company's revenue forecast to $24.5 billion from $25.4 billion.

Even so, Hernandez, is still relatively bullish on Oracle, writing in a research note this week that the lower estimates reflects the deteriorating macro environment and currency environment.
Hernandez writes that “it is prudent” to lower estimates here, given “lower closure rates” and a contraction in IT spending over the next several quarters. But he tags Oracle as "overweight" and that should boost the company's stock going into the new quarter.

Trading at around $16 per share, Oracle could be yet another tech bargain waiting for the storm to clear.

Dani AI

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As noted, short-term market rallies are easy to spot during volatile periods, but they don't answer the deeper question of vendor resilience. For enterprise software the key is revenue mix and deal cadence: recurring maintenance/subscription income cushions earnings, while large new-license and implementation projects are lumpy and get pushed when budgets tighten. That distinction should drive how you interpret headlines, analyst revisions, and quarterly guidance.

Check these items in filings, earnings calls, or vendor conversations before deciding "buy" or "nay":

  • Recurring revenue share and trend (maintenance + subscriptions as a percentage of total).
  • Deferred revenue and its year-over-year change.
  • New-license bookings and backlog movement.
  • Renewal/retention rates for maintenance or subscriptions.
  • Cloud/subscription ACV (annual contract value) growth and migration economics.
  • Services/implementation revenue direction and margins (these are the most cyclical).
  • Operating cash flow and free cash flow (ability to fund buybacks or weather a slowdown).
  • Timing and size of large deals—are wins being pushed into future quarters?
  • Contract provisions that affect revenue recognition (multi-year deals, acceptance clauses).
  • Any material one-offs (currency, accounting changes, asset sales) that distort the headline.

For IT buyers and DBAs, use the environment to tighten contractual protections: require clear licensing rules for virtualization/cloud, negotiate capped audit windows and conversion credits for cloud moves, push for fixed-price milestones on implementations, and run short hosted POCs to validate migrations before committing to large capex. For investors, prioritize durable recurring revenue, consistent cash generation, and conservative guidance — those fundamentals separate temporary noise from long-term value.

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