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Oracle said Wednesday that it expects its acquisition of PeopleSoft Inc. to accelerate earnings growth in fiscal 2005 and 2006. Oracle is forecasting that its pro forma earnings per share will grow 24% in fiscal 2005, which ends May 31, and 22% to 28% in fiscal 2006.
Oracle executives say the acquisition of PeopleSoft earlier this month is fueling some of that growth by increasing the company's base of software subscribers. CEO Larry Ellison, speaking before Wall Street analysts and institutional investors Wednesday in New York, said the company's subscription-based pricing is becoming a larger share of its business each year. "It's now our largest business and it's our highest-margin business. It's driving operating margins through the 40s to 50%. It's a highly predictable, recurring revenue stream."
For fiscal 2006 the company predicts total revenue of $14.1 billion to $14.5 billion, with new license revenue of between $4.3 billion and $4.6 billion. Pro forma earnings per share for fiscal 2006 are expected to be 76 to 80 cents.
Oracle's acquisition of PeopleSoft after an 18-month battle has expanded the company's presence in the enterprise-applications market, and Wednesday's statements from Oracle represented the clearest vision yet on its financial future since it began its hostile bid for PeopleSoft.
Ellison also explained how Oracle would selectively compete with market leader SAP in the applications market. "We wouldn't dream of competing with SAP in auto-manufacturing applications or energy applications. We won't go out and bang our heads against the wall. But we don't think they can compete with us in banking," Ellison said.
Oracle will define application markets in which it plans to compete and then build vertical-industry-oriented data hubs and transactional databases aimed at those markets. It's already doing so in pharmaceuticals.
Oracle is also starting to compete more directly with traditional business-intelligence software suppliers, such as Cognos Inc. and Business Objects SA, with its expanded reporting and charting and graphing capabilities, Ellison said.
Oracle will work hard to support the J.D. Edwards and PeopleSoft applications that it acquired with the merger, Ellison said. He cited the experience of owners of the Rdb database Oracle acquired from Digital Equipment Corp. in the mid-1990s, saying that provides an example of how Oracle can win over acquired customers with superior support. A prominent Rdb customer, for example, was Intel. "We eventually won over Intel. They're a huge Oracle customer now," Ellison said, adding he hopes the same becomes true of PeopleSoft customers.