Can Oracle's Database 11g Deliver?

It's counting on the database system to keep sales humming. Some analysts agree, predicting a 20% stock-price gain over the next year

by Aaron Ricadela

Given Oracle's penchant for juicy headlines the past year—an espionage suit against one rival, a strategic sucker punch against another, and $5 billion spent on a dozen acquisitions—it's easy to forget what the world's second-biggest software company actually does for a living.

Get ready for a reminder. At an event in Manhattan on July 11, Oracle (ORCL) co-President Charles Phillips and other company executives christened the first new version of the company's $10 billion-a-year database software since 2004.

"Lockbox" Security

The market has changed considerably since Oracle introduced version 10g. Databases are ballooning in size as companies process more transactions and analyze more information. "What was considered a big database three years ago is now considered a pipsqueak," says Andrew Mendelsohn, Oracle's senior vice-president for database development. Customers are increasingly storing new types of information like e-mail messages, maps, and videos as they comply with federal regulations and make use of new media. At the same time, they're trying to cut back on labor costs for information technology.

Oracle has developed features for 11g to address those trends. The new software is designed for easier installation, addressing pressures on IT departments to quickly change systems to support new products or manage mergers and acquisitions. "That's the No. 1 thing we're going to deal with in this release," Mendelsohn says. Also built into 11g is new data-compression technology to let companies stuff more information into supersized databases while spending less on disk space.

And 11g can cordon off information so it's only changeable by a CFO or auditor. "If you're concerned about security and compliance, then it's definitely a must-have," says Ari Kaplan, president of the Independent Oracle Users Group, which includes 20,000 members. Kaplan is also a senior consultant at Datalink (DTLK), which designs systems that use Oracle software. "Everything that happens in the database is put in a lockbox."

Bigger Stock Boost?

It's a product Oracle is counting on to keep its sales and stock price on the rise. Sales of databases and related middleware have been growing more than 15% a quarter, accounting for two-thirds of Oracle's $14.2 billion in software revenue for its fiscal year ended May 31. Some Wall Street analysts expect the new database system, Oracle 11g, to help fuel a 20% gain in stock price over the next year. That's on top of a 16% gain the shares have logged since the start of 2007.

In a positive sign, the 18% growth in sales of new database and middleware licenses that Oracle posted in its latest quarter offers "a strong indication" that corporate software spending isn't slowing down, according to a late June report by Brent Thill, Citigroup's (C) software research director (see BusinessWeek.com, 6/27/07, "Oracle's Mixed Message"). Now, "many investors are questioning if Oracle can deliver an encore," he said, raising his target for Oracle shares to $24 over the next 12 months; the shares closed July 11, up 26 cents, at $19.98.