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THE TIMES 100 : VIEW FROM THE STREET : Oracle Conquers Woes, Returns to Profitability : Computer software innovator's strong performance vaults it from 39th to 16th on the Market Value list.

April 27, 1993|DANICA KIRKA | SPECIAL TO THE TIMES

Oracle Corp. seemed clairvoyant in the 1980s. Long before the industry giants caught on, the Redwood City company had developed computer software that made it easier to retrieve and use computer data, helping businesses manage huge corporate databases.

Oracle's product used a pioneering innovation called structured query language, which proved so popular that IBM later adopted it as a standard.

Combining its formidable technology with aggressive sales and marketing tactics, Oracle's success was rapid--except for a brief but severe stumble during fiscal 1991. Revenue grew from $282 million in 1988 to $1.18 billion for the fiscal year ended May 31, 1992. In the past year, the company's stock has more than doubled, trading last week at about $34 a share.

Its strong performance propelled the company from 39th to 16th on this year's Market Value 100 list. Indeed, the firm's market value now exceeds such big-name companies as Gap Inc., Lockheed Corp., Times Mirror Co. and First Interstate Bancorp. (Market value reflects a company's stock price times the number of shares outstanding.)

The company's recent good fortune marks a major reversal from its troubles of a few years ago, when its engine nearly overheated. Even as the company celebrated its success with a troika of towers at the site of the former Marine World Africa USA--with perks such as 36,000 square feet of gym space, including basketball court--its management was becoming overwhelmed with expanding responsibilities.

"There was . . . almost a lust to grow that quickly--100% every year--that's what caused the problems that we had," said Terence J. Garnett, senior vice president of marketing.

"The people who were in charge . . . had come up through the ranks. One day they were managing a group of 10 people, the next year they were managing 50 people and the year after, 200. In a lot of cases, they didn't have the experience."

At the same time, faulty accounting procedures caught up with the company. It counted products as being sold before the delivery was made or paid for, the generally accepted accounting principle for software makers at the time.

Oracle "just about ran out of money," said Bruce M. Lupatkin, managing director of research for Hambrecht & Quist Inc. Worse, some of its products failed to work as well as promised. For its fiscal 1991, the company suffered its first-ever loss of $12.4 million on sales of $1 billion.

Now company officials like to describe that troubled period as a rough patch in Oracle's adolescence, a mere blemish on what has since become a pattern of solid growth and profitability.

Some analysts blame some of Oracle's problems on the management style of company founder Lawrence J. Ellison, whom Lupatkin describes as "autocratic." Ellison is "very bright, very hard-charging. . . . But historically, he hasn't delegated," Lupatkin says.

After the company's troubles surfaced, Ellison shook up management and installed executives with more experience in running a big corporation. More conservative accounting measures shored up the bottom line. Equally important, company officials said, was a shift in focus to tougher quality standards and more attention to customer satisfaction.

Those customers are a diverse lot, including the Joint Chiefs of Staff, the Peace Corps, Shell Oil and Sara Lee. The city of Riyadh, Saudi Arabia, uses Oracle software in an information management system to assemble geographic, geological and economic data used in city management and planning. The San Francisco Department of Public Health's system tracks patients' demographic, financial and clinical data.

Oracle's strong client roster should help the company fend off competitors, since corporate customers are usually reluctant to scrap a computer system and face the prospect of learning a new one. Analysts say Oracle, as well as competitors such as Sybase Inc., have an opportunity to take advantage of business's continuing abandonment of IBM mainframe computers in favor of powerful desktop systems. Since many of Oracle's customers were IBM users, they can take advantage of what Lupatkin described "as a new vacuum of leadership created by the demise of IBM."

Analyst Rick G. Sherlund, a vice president at the investment firm Goldman Sachs & Co., says the company's growth should boost earnings for its current fiscal year to as much as $1 a share, up from 43 cents last year. Revenue should climb to $1.46 billion, up from $1.18 billion last year, he estimates.

The company is exploring such technologies as "electronic superhighways." These pipelines promise to deliver movies, paperless bill payments and a vast array of information services to homes and businesses.

Oracle Chairman James A. Abrahamson sees the concept as the nexus of several areas of technology in computers, cellular communications and the like.

"The problem, of course, is that we are already bombarded with data," he said. "The real issue is, can it be selectively picked out from all the sources around the world so that it can be made intelligible and used by people?"

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