Regular readers know I always pick bargains. In a sense, the job of a fund manager or stock analyst is easier during bear markets; there are so many more bargains to be had, and if you're patient, you can be confident they will be strong buys after the market turns around. Not all of them are solid buys, though, so I tend to stick to proven market leaders in bearish times--companies that my 401K fund managers choose again and again. While my 401K plan is hurting, I'm in it for the long haul--I know the bulls will run again on Wall Street.
But not all analysts are patient. Several analysts have consistently downgraded Oracle (Nasdaq: ORCL) despite its domination of e-business infrastructure software. The reason: Two top executives have left the company in the past few months, leaving its flamboyant CEO Larry Ellison with nearly all the power. When Executive Vice President Gary Bloom left four months after the departure of President and COO Ray Lane, analysts panicked. Bargain hunters recognize when analysts prematurely push the panic button, and this is a case in point.
Despite Oracle's loss of two top executives, the company is still loaded with executive talent, starting at the top. Whatever your opinion of Ellison's power-corrupted personality, he is a proven leader. Each time he has taken a leave during his tenure the company has tanked. With Ellison at the helm, the company has produced record quarter upon record quarter (except for Q4 2000, when you would be hard-pressed to find any record quarters in SEC filings).
I spend a lot of time touring Internet data centers for e-business companies. The striking thing about these tours is how pervasive the Sun/Oracle tandem is in heavy-duty backend data centers. Some estimates put the complementary technologies at near duopoly status--more than 70 percent market share. And you can't argue with the data center market. It will continue to grow at more than 40 percent per year as big suppliers, merchants, and distributors get up to speed on business-to-business (B2B) back-end integration.
Still, there is some uneasiness among even the most tech-savvy analysts about Oracle's long-term status. One of my '99 failures was BroadVision (Nasdaq: BVSN), which is currently trading a few points below my purchase level for the CU fund, after a brief spike when I was tempted to sell. BroadVision's problem is its proprietary technology. Although the market for content-management software is strong, BroadVision has lost some business because of upstart Art Technology Group's (Nasdaq: ATG) open-architecture, Java-based solutions. Because of the modular nature of ATG's content management systems, companies can custom-fit its solutions to their needs, without the up-front costs of getting more than they need and the long-term labor costs of proprietary systems.
Like BroadVision, Oracle sells proprietary technology--hence the analysts' unease. Oracle products cost a lot upfront and a lot more down the road in labor. Outside of data centers, many companies don't need all that Oracle provides in the three S's--speed, scalability, and stability. Plus, it's really hard to find Oracle database administrators for less than six figures, and they're hard to keep.
This is a good argument, but the analogy with BroadVision is not quite apt. There is no unified, modular, open-architecture competition to Oracle. If you want to approach Oracle functionality in a modular way, you are forced to do it piece by piece, using several vendors. I don't see any upstarts chipping into Oracle's market share in the near term, though I would be cautious in the long term.
