Oracle Corp. may soon run out of excuses to feed Wall Street.
When the world's third-largest software maker missed earnings estimates for the first time in a decade back in December, it blamed an unpredictable global economy. That seemed plausible at the time.
But growing evidence suggests the company is suffering due to challenges that have nothing to do with the macro economy: mounting competition from traditional foe SAP AG , the loss of a key ally in Hewlett-Packard Co. , and a hardware business that is becoming a thorn in its side.
Analysts have become increasingly worried that the hardware business Oracle acquired in 2010 with its $5.6-billion (U.S.) purchase of Sun Microsystems has turned into a liability, with sales falling short of expectations.
The company's bread-and-butter database business – Oracle is the world's biggest maker of database software – may face off against competition from a re-energized SAP before the end of this year. And Oracle's highly touted new generation of business management software, released in 2011 after years of delays in development, has been slow to take off.
CEO Larry Ellison will deliver his latest report card on the state of the business on Tuesday, when Oracle releases quarterly results. An increasingly skeptical crew of Wall Street analysts will be parsing his words.
"Oracle is a company with some issues right now," said long-time Oracle watcher Rick Sherlund, a Nomura Securities analyst.
Those issues are reflected in its stock price, which has gained just 3 per cent since the company reported quarterly results in December, compared with a 17-per-cent rise in the Nasdaq composite index.
Some analysts believe buying Sun has undermined sales of Mr. Ellison's software because it put Oracle in direct competition with hardware makers who had long been some of the biggest resellers of his database programs and other products.
"They made a mistake getting into the hardware business. How it resolves itself, I'm not really sure," said Fred Hickey, editor of the High-Tech Strategist Newsletter for investors. While hardware makers such as Hewlett-Packard, International Business Machines Corp. and Dell Inc. continue to sell Oracle products, these days they are putting less effort into doing so, he said.
The problem may be most acute with HP, the world's biggest computer maker. A bitter feud has erupted between Oracle and HP since Mr. Ellison's friend, Mark Hurd, abruptly resigned as HP chief executive officer amid a sexual harassment scandal. Mr. Ellison admonished HP's board for the way it handled the matter, calling them "cowardly," and then hired Mr. Hurd.
The two companies have since filed lawsuits against each other over Oracle's decision to stop producing software for high-end HP computers.
Meanwhile, Oracle's rivals aren't standing still. Several analysts say they are concerned about a new strategic weapon in SAP's arsenal: a specialized database dubbed Hana that pulled in €160-million ($208-million) in sales in its first two quarters on the market, ahead of SAP's target of €100 million.
SAP has packaged the technology with hardware from IBM as a niche product, a business intelligence tool to help companies analyze large quantities of data. The bigger threat from Hana, however, is that SAP is tweaking the technology so it can be used to hold data for business management applications that handle corporate accounting, human resources and procurement software.
The bulk of SAP applications currently run on Oracle database software, and the German company is the biggest reseller of that product. If Hana wins acceptance as an alternative to the Oracle database, that could either reduce sales of the Oracle database or force Oracle to slash prices.