The Database Report – April 2009

The first quarter of any given year can be dull and inactive, but that certainly does not describe the first quarter of 2009. The declining economic conditions hogged the spotlight this quarter, but
there were still some interesting things that happened as we kicked off the year. So let’s move forward, follow up on some stories we covered in past editions of The Database Report, and examine all of the news that’s fit to examine in the world of data and database systems.


It’s The End of the World as We Know It…
The biggest DBMS news of the first quarter of 2009 is, of course, the economy and its impact on the database software sector. In a down economy, sales will soften and that means jobs will be
lost. And that was the case this quarter.

In early January, Oracle cut about 500 jobs in North America, mostly in sales and consulting. The Wall Street Journal reported that the cuts came from Oracle’s staff of 33,526 employees in the
Americas; the company employed 86,657 globally as of the end of November 2008. Although layoffs are never a “good” thing, the number of impacted folks was less than expected. Earlier
reports buzzed around several industry blogs that the layoffs at Oracle could impact as many as 8,000 individuals.

Not unexpectedly, Oracle had no comment on the layoffs.

Of course, there may be additional layoffs in the upcoming months. According to an SEC filing made on December 22, 2008, Oracle expects to eventually spend a total of $148 million on severance
packages for laid-off employees of BEA, which Oracle acquired back in January 2008. BEA changed its severance terms and conditions in late 2007 as it tried (unsuccessfully) to fend off an Oracle
acquisition. Most former BEA employees would receive between three months and 12 months severance pay along with COBRA health insurance if they are laid off within a year of an acquisition;
Oracle’s acquisition of BEA was finalized April 29, 2008. (The cited SEC filing can be read here.

The Times of India also reported that forty folks were laid off at Oracle’s development offices in Banagalore.

The bottom line here regarding these layoffs by Oracle is that they are probably due to a combination of business alignment after acquisitions and preparation for a slower economic landscape in
2009.

But Oracle was not the only DBMS vendor to announce layoffs in the first quarter of 2009. Later in January, IBM laid off more than 2800 people. According to the Alliance@IBM employee union, IBM laid
off at least 1,419 workers in its Software Group and another 1,449 in Sales and Distribution. Those numbers came from documents Alliance@IBM obtained from laid-off workers. The documents, basically
separation agreements, indicate how many people have been affected by what IBM calls a “resource action.”

According to a Wall Street Journal account of the layoffs, “It couldn’t easily be determined what percentage of workers in the two groups was affected. But one large category – software
engineers – suffered layoffs of 839 out of 9,784, or about 8.6%, according to a tally by one person who received a notice.”

Then, in late March, the rumor mill was alive with buzz that IBM may be getting ready to make an even larger workforce reduction. According to the Alliance@IBM employee union, the cutbacks may affect
about 4,000 U.S. workers at IBM’s Global Business Services unit. The expected cuts were first reported by The Wall Street Journal, which cited anonymous sources at IBM indicating that the company
plans to eliminate “a large number” of U.S. jobs at the Global Business Services division and shift more of its work to facilities in India.

Again, expectedly, IBM had no comment on the rumors.

What about Microsoft, you may ask? Good question. In mid-January Microsoft announced that it would be laying off 5,000 employees. The layoffs were spread across the company instead of targeted to any
individual projects or groups.

Later in the month, Charles Grassley, a Republican Senator from Iowa, questioned Microsoft’s job elimination in light of the company’s usage of the H-1B visa program. “I am
concerned that Microsoft will be retaining foreign guest workers rather than similarly qualified American employees when it implements its layoff plan,” said Grassley in a letter dated January
22, 2009. Evidently Microsoft employs thousands of workers on H-1B visas.

I think the Senator makes a very good point there, don’t you? At any rate, my heart goes out to the newly unemployed. It may prove to be rather difficult to find a new job under the current
economic conditions.

SAP also announced staffing cuts in January 2009. The company intends to reduce its global workforce to by more than 3,000 folks by the end of this year, along with a wage freeze for those who
remain. SAP indicated that these actions will result in an annual cost savings of 300 million to 350 million Euros beginning in 2010. It would seem that this staff reduction was planned as a result
of SAP’s net income for 2008 falling by 2% year on year.

Additionally, SAP said that it would not provide a specific outlook for revenue from software and software-related services for 2009 because of the continued uncertainty surrounding the economic and
business environment. We’ll look into the earnings announcements of the DBMS vendors later in this column.


And Oracle is Still Acquisitive
Even as the economy continues its meltdown, Oracle continues its acquisition spree. In February, Oracle announced its intention to acquire mValent, which provides software for tracking system
and configuration changes that are made across the IT infrastructure.

Oracle did not disclose how much it is paying for mValent, but the deal is expected to close by the end of the first half of 2009. This deal is interesting for a number of reasons: mValent is a
private, venture capital-backed company, with reported backing of more than $26 million from Charles River Ventures, Flybridge Capital Partners and Polaris Venture Partners; additionally, this
broadens Oracle’s competition with IT service (ITIL) tool providers such as BMC Software, CA, EMC, and HP. 

“Effective application configuration management is increasingly important as businesses look to improve operating efficiencies,” said Richard Sarwal, senior vice president, Oracle
Applications and Systems Management. “With the addition of mValent, Oracle expects to be able to address this need by providing customers with the ability to collect, compare and reconcile deep
configuration information of complex systems. This acquisition is consistent with Oracle’s strategy for delivering cost-effective solutions for managing applications that enable customers to
adopt new, innovative technology with reduced risk.”

Oracle intends to integrate the mValent technology into its Oracle Enterprise Manager set of systems management tools.

And Oracle made an additional acquisition this quarter, too. In late March, Oracle agreed to acquire Relsys International, a provider of drug safety and risk management solutions with advanced
analytics for the health sciences industry. Relsys offers solutions designed to support adverse event reporting, risk management, and data analysis for pharmaceutical, biotechnology, contract
research organizations and medical device companies worldwide.

“The health sciences industry is increasing investments in software that provide greater transparency into drug safety and help improve the overall safety of therapies,” said Neil de
Crescenzo, Senior Vice President and General Manager, Oracle Health Sciences. “With the addition of Relsys, Oracle is uniquely positioned to help our customers improve drug safety by delivering
a comprehensive software solution that enables our vision of integrated safety and risk management supported by advanced analytics.”

With the addition of Relsys, Oracle claims to offer the only suite of software applications that supports end-to-end drug safety processes across clinical development, post-market surveillance and
patient care.

Financial details of the transaction were not disclosed. The acquisition is subject to closing conditions and is expected to close in the first half of this year. Until the deal closes, each company
will continue to operate independently.

In other Oracle acquisition-related news, the rumor mill was afire with bits of gossip that Oracle might be planning additional acquisitions. Well, I think that is probably not a rumor; it is almost
fact given their track record. The potential acquisition targets though, at this point, are still rumors. The big one is Red Hat. But to me, this is doubtful because Oracle already offers Red Hat
support through its Unbreakable Linux program, which was launched in late 2006. Another company rumored to be in Oracle’s sights is Virtual Iron Software. Virtual Iron would add Xen management
capabilities to Oracle, which already has a Xen-based hypervisor.

Sybase also made the news the past quarter by acquitting paybox Solutions, a German based company specializing in mobile payments. Financial terms of the deal were not disclosed.

Sybase plans to integrate paybox into Sybase 365, a wholly owned subsidiary of Sybase, Inc. It said the acquisition will enable it to provide mobile operators, financial institutions, and merchants
with a full suite of mobile payment products for person-to-person remittances, payments for goods and services, mobile airtime top-ups, and bill payments from a mobile device

With the economy in a recession, enterprise applications makers are facing increased pressure to provide customers with products that
help them conduct business with greater efficiency and even insight.


What About the Money?
With the economy in the tank and all, what kinds of earnings were reported by the Big Three DBMS vendors: IBM, Oracle, and Microsoft?

Let’s start with some good news over at IBM. In late January, the company reported its fiscal fourth quarter earnings, and they beat analyst expectations. IBM reported a 12% increase in
fourth-quarter earnings on net income of $4.4 billion, or $3.28 a share. Wall Street had expected earnings of $3.03 a share from IBM for the quarter.

IBM further reported that it is not only on track to achieve its previously stated goal of an annual profit of $10 to $11 a share in 2010, but that its ahead of pace to reach that goal. “With
our strong financial position, solid recurring revenue and profit streams and global reach, we are confident about 2009 and, based on our 2008 performance, we are ahead of pace on our roadmap for $10
to $11 per share,” Samuel Palmisano, IBM chief executive, said in a statement.

Revenues from IBM’s middleware products, which include DB2, as well as Informix, IMS, WebSphere, Tivoli, Lotus and Rational products, were $5.2 billion, up 4% versus the fourth quarter of 2007. If
we just look at the revenues from Information Management software, which includes all of the DBMS software, we see a nice, healthy increase of 18%.

On the other hand, IBM reached $27 billion in the fourth quarter revenue, down 6% over last year. But when accounting for currency changes, the decline was only 1%. Analysts had expected revenue
generation from IBM of $28.3 billion for the quarter.

Since this was IBM’s fiscal fourth quarter, that means that IBM also reported its annual results. Highlights include:

  • Record revenue of $103.6 billion
  • Record pre-tax profit of $16.7 billion
  • Record earnings per share of $8.93
  • Record free cash flow of $14.3 billion
  • Software revenues up 11%, 8% adjusting for currency; pre-tax income up 18%

What about Oracle? Well, second quarter results were resoundingly mediocre. Oracle announced fiscal 2009 second quarter earnings per share were $0.25, in line with GAAP earnings per share in the
second quarter of 2008. Second quarter total revenues were up 6% to $5.6 billion, while quarterly net income was down 1% to $1.3 billion. Software revenues were up 8% to $4.5 billion but new software
license revenues were down 3% to $1.6 billion. Software license updates and product support revenues were up 14% to $2.9 billion. Services revenues were down 2% to $1.1 billion.

Without the $0.04 per share impact of the U.S. dollar strengthening compared to foreign currencies, Oracle’s reported Q2 earnings per share would have been up 11% to $0.29, with total revenues
up 12%.

Of course, the company wanted to put a positive spin on things. “We signed our largest on-demand sales force automation contract this quarter,” said Oracle CEO, Larry Ellison. “This
was just one of several recent wins over salesforce.com. We also sold our first database machine, launching an all new and important business for Oracle.” And that is good.

Database revenues were solid with new software license growth at 4%, software license updates and product support at 17%, and overall database software revenue growing at 12% over the same quarter
last year.

Things were not quite as rosy in the applications space with new applications software licenses declining 15% over the same quarter last year and overall applications software posting no
growth.

And then there is Microsoft, which reported its second quarter results in late January. Second quarter revenue came in at $16.63, a 2% increase over the same period of the prior year. Operating
income, net income and diluted earnings per share for the quarter were $5.94 billion, $4.17 billion and $0.47, representing declines of 8% 11% and 6%, respectively, compared with the prior
year.

Client revenue declined 8%, which Microsoft attributed to weakness in the PC market and a continued shift to lower priced netbooks. However, strong annuity licensing drove Server & Tools revenue
growth of 15% (this is where SQL Server revenue is reported).

“While we are not immune to the effects of the economy, I am confident in the strength of our product portfolio and soundness of our approach,” said Steve Ballmer, chief executive officer
at Microsoft. “We will continue to manage expenses and invest in long-term opportunities to deliver value to customers and shareholders, and we will emerge an even stronger industry leader than
we are today.”

So Microsoft reported modest revenue growth despite the difficult economy.


Fighting The Next Round in the SAP – Oracle Legal Battle
And don’t for a minute think that Oracle has let up on its legal pursuit of SAP. Let’s recap for those of you who are unfamiliar with the particulars of this lawsuit. It all started
early in 2007 when Oracle sued SAP claiming that TommorowNow, an SAP subsidiary, stole Oracle’s trade secrets. Oracle claims that TomorrowNow accessed Oracle’s software documentation
inappropriately. If you want to read the complaint in its entirety you can find it here.

What happened this quarter? In late January Oracle issued 102 subpoenas to 99 former customers of TomorrowNow. Forty-nine of the 99 customers have provided more than 77,000 documents comprising
almost 400,000 pages. SAP is reviewing the documents in order to “appropriately designate any confidential or highly confidential information that may be contained therein.”

Then, on February 23, 2009, Oracle and SAP participated in a two-hour settlement conference in federal court in San Francisco. Predictably, a settlement was not reached. Oracle has not offered a
specific figure for damages, but the company previously bandied about a number is excess of $1 billion. Another settlement conference is scheduled for November 30, 2009. Call me a pessimist, but I
don’t foresee a settlement being reached at that time, either.




In Other SAP News
In late January, the president and CEO of SAP North America, Gregory Tomb, announced that he is taking a leave of absence for personal reasons. Tomb has worked for SAP for more than 12 years but
has been CEO only since last year

Longtime SAP executive Rob Enslin has been named as his replacement. Enslin has worked for SAP for 16 years and was previously the chief operating officer of SAP North America. Tomb is expected to
return to the company at some point in the future, but his exact role has not been determined. According to a company spokesman, Tomb’s exit was not related to the company’s business
performance.


Database News Bits and Bytes
Finally, let’s quickly look at several smaller stories from the past quarter:

  • Ingres Corporation, a provider of open source database management software and support services, announced that Ingres Database 9.2, an open source database for business critical applications,
    has been certified for integration with the SAP NetWeaver technology platform.

  • In mid-January, Oracle released its first critical patch update (CPU) for 2009 fixing no less than 41 flaws in Oracle products. Almost half of them were specific to Oracle’s database
    product suite.

  • Bill Gates wrote his annual Bill Gates letter highlighting the achievements and challenges of the Bill and Melinda Gates foundation. The letter is about twenty pages long, but it is an
    interesting read. The foundation’s assets were down about 20% last year, which isn’t bad considering Wall Street was down around 40%. You can read the letter for yourself here.

  • Oracle released the latest iteration of its CRM On Demand application (Release 16). CRM On Demand is the cloud computing application Oracle acquired when it bought Siebel. The new version will
    offer new customization tools, new partner relationship management utilities, improved reporting tools from Oracle’s business intelligence suite, and a hosted single-tenant standard edition,
    challenging the multi-tenant philosophy of arch-rival Salesforce.com.

  • And in mid-January IBM announced that it earned 4,186 U.S. patents in 2008. This sets a record, as IBM becomes the only company to ever earn more than 4,000 U.S. patents in a single year. 


Summary
And so ends another edition of The Database Report. Even with a sagging economy, there was quite a bit of activity during the first quarter. So it sure
promises to be an exciting year in the DBMS market. And that means you better make sure that you check in with us again next quarter to review what happens next with your favorite database software
and companies.

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Craig Mullins

Craig Mullins

Craig S. Mullins is a data management strategist and principal consultant for Mullins Consulting, Inc. He has three decades of experience in the field of database management, including working with DB2 for z/OS since Version 1. Craig is also an IBM Information Champion and is the author of two books: DB2 Developer’s Guide and Database Administration:The Complete Guide to Practices and Procedures. You can contact Craig via his website.

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