Oracle Excels amid a Tough Outlook

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One big reason for Oracle's success is its ability to gain a bigger slice of companies' information technology budgets. "It's easy to buy software from Oracle," says Patrick Walravens, an analyst at JMP Securities (JMP) who rates Oracle a buy. Whereas customers in years past may have divided spending among Oracle and companies like PeopleSoft and Siebel Systems—both of which Oracle has acquired—"now you just write a check to Oracle." During the conference call, Oracle CEO Larry Ellison said the company plans a major announcement about its core database business in September.

Oracle, the dominant supplier of database software, has been using acquisitions to make inroads in the business applications market that's led by Germany's SAP (SAP). SAP held 22% of the $63 billion market in 2007, compared with 13% for Oracle, according to tech industry consulting company AMR Research.

Leaner 2009 for Business

A price hike could add to Oracle's momentum. In June, Oracle raised prices by 15% to 20% for its applications and database, its biggest increase in years, according to a June 18 report by Citigroup (C) software research director Brent Thill, who rates Oracle a buy. "Oracle has the power to raise prices based on dominant or No. 2 share in each of the categories they play in," wrote Thill.

The company is also expanding into new markets. On June 23, Oracle bought privately held Skywire Software, which makes applications for the insurance industry, and announced it had formed a new unit to sell software to the health-care industry. On May 13, Oracle said it acquired AdminServer, another developer of insurance industry software. Oracle has been able to make inroads into software for data-intensive industries including retail, banking, and public utilities, where customers already use its database software, says Stuart Williams, an analyst at market researcher Technology Business Research.

Though Oracle gets a bigger piece of budgets, companies could slice overall spending come August as they prepare for what may be a leaner 2009, says JMP's Walravens. Faced with a choice between layoffs and buying fewer computers and software packages, many companies may opt to dial back tech spending, he says.

Rival SAP has been feeling the pinch. SAP's average deal size in the U.S. has been falling as IT projects here become smaller in size and companies push more buying to decision-making boards, CEO Henning Kagermann said in a June 20 interview. "In a tough environment, you look at every dollar."

And Oracle will be vying for every one that doesn't get cut.

Ricadela is a writer for BusinessWeek.com in Silicon Valley.