The Database Report – July 2003

The second quarter of 2003 brought to us yet another wild and woolly bunch of activities in the DBMS market place. Sorting out the interesting tidbits among the news items is quite a challenge this
time around. We had interesting earnings announcements, the announcements of a delay for a major new DBMS version, and merger and acquisition rumors and threats. How does that grab you for a wacky
quarter? Well, let’s elaborate on these issues and more.

Larry and the Applications Vendors

The juiciest technology news almost always centers on mergers and acquisitions. But if we take a couple of merger and acquisition stories and then add in the always volatile Larry Ellison things
get really interesting!

But let’s back up a bit to start this story at the beginning. On Monday, June 2, 2003, Peoplesoft, one of the leading providers of business application software, announced its intent to purchase a
smaller rival, J.D. Edwards. Peoplesoft offered $1.7 billion in stock for J.D. Edwards. If Peoplesoft were successful in taking over J.D. Edwards the combined companies would approach $2.8 billion
in annual revenue.

So far, so good – and only of peripheral interest to the DBMS market. Of course, these application software vendors rely on database technology provided by the big three DBMS vendors, so DBAs and
database professionals were interested.

But on Friday, June 6, 2003, the stakes grew. Oracle, apparently worried about the growing size of one of its larger competitors in the applications space, made a stunning bid to take over
Peoplesoft. What made the bid so stunning was not just the size of the takeover attempt – $5.1 billion – but that it was a hostile takeover bid (and hostile takeovers are difficult and rarely
successful).

But then again, Larry is being consistent. I suppose we should view all of this activity in light of the interview Ellison gave earlier this year on IT industry consolidation. In early April 2003
Ellison said that he believes the computer industry has reached the limits of its growth. In that same interview Ellison predicted the failure of 1,000 tech companies due to consolidation and
increasing standardization of products. Further, Ellison stated his belief that the small group of vendors that come out on top after this massive consolidation will dominate product development
and control industry standards. Being Larry, he named some of the companies he believed would survive: IBM, Microsoft, Amazon.com, Dell, Yahoo, SAP, Intel, eBay; and, oh, yes, Oracle!

So, if that is what Ellison truly believes, then he had better start gobbling up his competitors – at least those that are not on his survivors list. But his acquisition strategy should be a little
better thought out. I mean, launching a hostile takeover of a competitor right after they announce an acquisition is not that wise. And the price of Peoplesoft’s stock (at the time of this
writing) is already higher than the price Oracle has “offered” in its hostile takeover bid. Of course, Peoplesoft and J.D. Edwards are denouncing Oracle with cries of “unfair” and
“antitrust.” Truthfully, because of Oracle’s current applications business, there will likely be significant regulatory walls for Oracle to scale before it would ever be permitted to acquire
Peoplesoft.

Craig Conway, CEO of Peoplesoft, said that he could not imagine a price or combination of price and other conditions that would lead him to recommend accepting Oracle’s offer. Of course, this is
not in the best interest of Peoplesoft’s shareholders, either. As someone once said, “everything has a price.” And I imagine, so does Peoplesoft. But the bottom line here is that Oracle’s offer
is way too low.

On June 12th, Peoplesoft announced that its board of directors unanimously rejected Oracle’s unsolicited takeover bid. Two reasons were given for the rejection: the bid was too low and the
possibility of antitrust violations. Furthermore, the Peoplesoft announcement stated that the Oracle bid “is designed to disrupt the company’s strong momentum at significant cost to Peoplesoft’s
customers.” The Peoplesoft board of directors also approved a pay package for CEO Conway that would raise his salary to $1 million in the event of a takeover. Such a move is widely viewed as a
form of poison pill to dissuade potential suitors from acquiring a company by making the acquisition more costly. Of course, Peoplesoft states that this move was simply part of its regular
re-evaluation of executive pay and was instituted prior to the Oracle bid. Hmmm.

On June 13th Peoplesoft announced that it was taking its beef with Oracle to court. Peoplesoft’s suit against Oracle claims that Oracle has undermined Peoplesoft’s viability by creating doubt
about its future, and at the same time is disrupting its plans to merge with J.D. Edwards. Peoplesoft may have gotten the idea to sue Oracle from its shareholders. As of mid-June 2003 there have
been seven shareholder lawsuits filed against Peoplesoft, with most of them claiming that Peoplesoft mishandled its response to Oracle’s offer (although at least one of the shareholder lawsuits
was filed to fight PeopleSoft’s intended acquisition of J.D. Edwards).

Then, later in June 2003, Oracle decided to increase the size of its Peoplesoft acquisition bid by 22 percent. Instead of the $16 per share price Oracle lifted its offer to $19.50 a share.
Furthermore, on June 24th Oracle dropped its initial objections to Peoplesoft’s pending acquisition of J.D. Edwards. Of course, this did nothing to Peoplesoft’s resolve to remain independent. And
you have to wonder about Oracle’s intentions when they still have pending litigation opposing Peolesoft’s acquisition of J.D. Edwards.

Also in late June Oracle CFO Jeff Henley emphasized that Oracle was still “absolutely committed” to taking over Peoplesoft. Interestingly, too, Henley began to talk about Oracle’s plans for an
acquired Peoplesoft. Of particular interest to current Peoplesoft customers, Henley clarified that Oracle was not planning to eliminate the Peoplesoft brand, but would not offer Peoplesoft products
to new clients. So it should be interesting to watch this play out during the course of the third quarter.

My prediction is that Oracle will probably raise its offer for Peoplesoft once again, but is still unlikely to succeed in wooing Peoplesoft. If things start to get to the “serious” level between
Oracle and Peoplesoft, look for other companies to get into the bidding war. Who? Possible candidates include SAP, IBM, maybe even Microsoft (although that is unlikely because Microsoft tends to
acquire companies much smaller in size than Peoplesoft). But in the end, probably all that Oracle is after is for Peoplesoft’s acquisition of J.D. Edwards to fail. Whether that happens or not
remains to be seen, but the hostile takeover attempt sure does throw some stink on it.

Will Next Version of SQL Server be Late? Yukon Bet on It!

During the first week of June 2003, Microsoft held its annual TechEd conference in Dallas. The big database news that came out during that event was that the schedule for delivery of the next
version of SQL Server, code-named Yukon, had been pushed back. Microsoft announced that Yukon, which will now ship in the second half of 2004 rather than the first half as previously expected.

During his keynote speech at Microsoft TechEd, Paul Flessner, Sr. Vice President of Microsoft’s Windows Server division, made the announcement, but stated that there was “no specific reason for
this.” Perhaps there was a non-specific reason, then? At any rate, the first public beta for Yukon is still expected to happen this summer – that is, the summer of 2003.

During the same keynote Flessner talked about Microsoft SQL Server 2000 Reporting Services, which he said will undergo a public beta this fall and should be delivered by the end of 2003. A little
bit further out, Flessner indicated that in 2006 Microsoft is planning a version of Exchange Server, code-named Kodiak, which will run on top of SQL Server.

The DBMS Market Share Wars Continue

This past May industry analysts at Gartner Dataquest published their annual DBMS market research report and IBM was recognized as the overall leader for relational database systems. IBM managed to
increase its overall market share from 34 percent in 2001 to more than 36 percent in 2002, largely due to its massive lead in the mainframe DBMS market. The same market research report details
Oracle’s overall market share dipping to 34 percent last year from 40 percent in 2001. Good news for IBM, perhaps, but bad news for the DBMS market overall because the report shows that DBMS sales
fell nearly 7 percent in 2002. This is not really surprising though given the state of the economy and the IT sector in general.

The Gartner Dataquest report also indicated that Oracle maintained its advantage in the distributed space (that is, for Unix, Linux, and Windows platforms). Oracle scored an impressive 43 percent
market share compared to IBM’s 24 percent of this market. And when you limit it to just the Unix market, Oracle lands a whopping 62 percent market share, whereas IBM comes in with just under 27
percent. This is a nice ray of sunshine for Oracle given the hotly contested nature of the distributed Unix DBMS market.

Microsoft’s DBMS market share was reported at 23 percent. Obviously, Microsoft’s entire market share comes from platforms running a Windows operating system. When slicing the data just for
Windows machines Microsoft zooms to a leadership position with 45 percent of that particular market (up from 39 percent the previous year). For Windows only, Oracle scored a 27 percent market
share, and IBM was in the show position with a 22 percent market share.

The public relations win for IBM is huge and look for them to tout this incessantly during the remainder of the year. Last year when IBM outpaced Oracle in terms of overall database sales, IBM
crowed rather loudly. This year, since they also surpassed Oracle in the relational database market, IBM will likely make more noise especially since Oracle countered last year’s report by stating
that they were still number one in the only DBMS market that mattered – the relational market. And that is no longer true – at least according to Gartner Dataquest.

IBM Keeps on Announcing

IBM kept themselves quite busy this past quarter with a steady string of data management product announcements. First of all, IBM delivered for general availability two “products” that were first
announced last quarter: DB2 Universal Database Express and DB2 Information Integrator. DB2 UDB Express is a DBMS package specially tailored for the Small to Medium sized business market and DB2
Information Integrator is IBM’s foray into the federated database management. With a federated approach to database management customers can integrate multiple forms of content — document, Web,
image, rich media — across diverse business processes and applications, plus deliver integrated, consistent content across your enterprise.

IBM also announced Tivoli Risk Manager for databases, security event management software that correlates database security events with other events across the network.

Many of these announcements were made to capitalize on the annual International DB2 User Group (IDUG) meeting, which was held in Las Vegas during the week of May 19, 2003. One of the announcements
made by IBM at IDUG was for DB2 UDB Data Warehouse Enterprise Edition and Standard Edition. These DBMS packages are geared to help organizations build data warehouses for business intelligence
using DB2 technology. IBM actually announced some significant new technology with this particular offering. One technological highlight of DB2 Warehouse Edition is the brand new DB2 Cube Views
capability. DB2 Cube Views helps speed the development and management of OLAP solutions and applications that sit on top of DB2 UDB. DB2 Cube Views provide users the ability to store and manipulate
OLAP metadata in the DB2 catalogs. Metadata captures the structure of OLAP cubes, enabling the Optimization Advisor to recommend materialized query tables for improve query performance. Additional
software is supported, too. For example, DB2 Warehouse Manager Standard Edition supports the Red Brick Warehouse database server. And DB2 Warehouse Edition also provides DB2 Office Connect
Analytics – a new Microsoft Excel plug-in that connects to DB2 and turns the spreadsheet into an OLAP cube viewer.

Finally, at least with regard to IBM announcements this past quarter, in early June, IBM announced the availability of Informix Dynamic Server Version 9.4 Linux on the zSeries – that is the
mainframe for those of you who not literate on IBM’s naming conventions. So, Informix continues to live and breathe under the benevolent rule of IBM. But frankly, I doubt there will be much uptake
of this product on this platform and operating system. Most folks running Linux on the mainframe will be IBM zealots for whom DB2 would be their first choice. But it is nice of IBM to keep throwing
bones to the Informix installed-base.

By the Numbers

Now, like we do every quarter, let’s take a look at some of the revenue numbers announced by the major DBMS vendors over the past three months.

First of all, in the middle of April both IBM and Microsoft reported their quarterly financial numbers. There were no real surprises in either.

IBM announced first quarter 2003 income from continuing operations of $1.4 billion, an increase of increased 8 percent when compared against $1.3 billion in the first-quarter 2002. IBM’s first
quarter earnings were 79 cents per share, 1 cent lower than analyst expectations. Revenues from continuing operations for the first quarter were $20.1 billion, up 11 percent compared with the first
quarter of 2002 revenues of $18.0 billion. IBM’s growth continues to be driven by its services group.

Focusing in on the software side of IBM’s business, software sales grew 8 percent – even while hardware sales dropped. Revenue for middleware products (which includes DB2) rose 9 percent. Singling
out DB2 altogether, though, shows that DB2 sales grew 14 percent on a year-over-year basis.

At Microsoft, third-quarter income rose 2 percent to $2.79 billion compared with $2.74 billion or 25 cents a share for the same period a year ago. The results were 2 cents a share better than
analyst forecasts. The strongest growth for Microsoft came in high-end server sales (which includes SQL Server).

And finally, Oracle announced its fiscal fourth quarter results on June 12, 2003. And the news was very, very good. Net income rose 31 percent to $858 million, compared to net income of $656
million in the same period a year ago. Sales for the quarter increased 2 percent to $2.83 billion, which was also up from $2.77 billion a year ago. Revenue from sales of DBMS software rose 3
percent to $933 million.

For the entire fiscal year of 2003, net income increased 4 percent to $2.31 billion – which translates to 43 cents per share – whereas Oracle’s net income in fiscal year 2002 came in at $2.22
billion, or 39 cents per share. Total revenues came in at $9.5 billion, which is down 2 percent from last year.

The market reacted positively to this news where shares of Oracle rose to a 15 month high on June 13, 2003. Financial analysts greeted the news warmly, too, with several firms raising their view of
Oracle.

An Analyst Joins Oracle

In mid-May of this quarter Oracle announced the appointment of seasoned Morgan Stanley Dean Witter software industry analyst Charles Phillips as a new executive vice president. Phillips will be in
charge of customer and partner activities at Oracle and will report directly to CEO Larry Ellison. Mr. Phillips worked as an enterprise software industry analyst since 1986; and he worked for
Morgan Stanley’s Institutional Securities Division since 1994.

It is an unusual move for a financial analyst to move to a company he used to cover. Analysts are typically encouraged to put some distance between themselves and the companies they cover.
Competitors whom Mr. Phillips may have covered in the past may be concerned about any inside information to which Phillips may have been privy.

Of course, this seems to be a good move for Oracle. Phillips is a solid veteran with respected analytical skills. And there has never been any concern over Phillips’ coverage of Oracle, or the
software industry. Indeed, Mr. Philips has been the top enterprise software industry analyst as ranked by Institutional Investor magazine every year since 1994.

This Oracle announcement can be found at http://www.oracle.com/corporate/press/index.html?1753424.html.
Summary

And so ends the second quarter of 2003. All of the major DBMS vendors were making news this past quarter – and some of the news shook the core of the software industry. With pending acquisitions,
delayed software, never-ending announcements and Larry’s on-going shenanigans, it looks like the final two quarters of 2003 could be very entertaining. So be sure to check back with TDAN.com next
quarter to hear all the latest news about the DBMS market place.

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About 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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