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Oracle: Lowering Estimate for Database Licences
February 22, 2001

By Mark Verbeck
Managing Director, Senior Analyst
David Trainer, Timothy Madda
Associate Analyst, Associate

  Key Points
Oracle's first AppsWorld conference is well attended and upbeat.

We remain confident that Oracle's application business will be its principal growth engine.

Oracle's share-price weakness, spurred by database concerns, presents an attractive entry point for investors in this core software holding.

Oracle used its first AppsWorld user conference to continue pounding on its e-business-suite marketing message. Interest in its latest release is strong, and many users among the 11,000 attendees were intent on understanding the features and upgrade process for 11i. Overall, the user community seems satisfied that the Jan. 2001 release 3 of 11i is stable enough for an upgrade from their prior implementations. This is encouraging news because current customers tend to purchase additional applications in the future.

Based on feedback from customers and systems integrators, we believe Oracle is well positioned to continue to deliver strong growth in application sales. The integrators are expanding their Oracle-dedicated staff and customers are looking to add new applications. We therefore believe that Oracle will deliver good numbers for this business in this and the coming quarters. That said, given the economic environment and Oracle's share of the database market, we believe the server license line for 3Q01 is likely to come in at the low end of the guidance range (15%-20% growth) and that our model's 19% growth estimate may be slightly aggressive. We remain confident in the growth prospects for the database business -- Oracle continues to gain market share, and the volume of corporate data continues to expand. In addition, Oracle was especially bullish on prospects for its application servers, which will also contribute to the server license growth.

In a webcast meeting with the financial community on Tuesday, CFO Jeff Henley noted no change to guidance going into the quiet period. We are making no changes to our model at this time.

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