Oracle Systems Corporation Was Founded

Oracle Systems Corporation was founded by Lawrence J. Ellison in 1979 "to commercialize an innovative database management system," (p. 74). Throughout the 1980s, Oracle was the "fastest growing software company in the world" and clearly enjoyed a position at the top of the database management systems (DBMS) industry (p. 75). The company went public in March of 1986 with a stock issue price of $2.00 per share. By 1990, only four years later, Oracle's share price peaked at $28.375.

Oracle's pre-1990 fiscal health was due to several factors, including an aggressive sales policy, diversification strategies, and international expansion and growth. Between the years 1980 to 1989, Oracle had "more than doubled its sales every year," (p. 75). However, in March of 1990, just when Oracle's stocks peaked in price, the company suddenly reported zero-growth and flat earnings revenue. The March 1990 announcement sent shock waves through the stock market and on September 25 of that year, Oracle announced its first ever quarterly loss.

The previous year, Oracle had reported $11.7 million in earnings; in September of 1990, Ellison admitted a $36 million quarterly loss. Because the decline in share price revealed deeper conflicts within the corporation including management issues, Oracle was not financially healthy in September of 1990. Financial health means more than just quarterly earnings and rising share prices. The Oracle case study is a prime example of how a corporation can perform well on paper for a number of years only to suddenly shock shareholders and anger its customers as well as its investors.

Plus, the very thing that seemed to work for Oracle in the beginning of the company's existence -- aggressive sales tactics -- was a primary cause of the company's falling revenues. The main reason why Oracle reported unchanged quarterly earnings in March of 1990 was because of about $15 million in sales that were disallowed by company auditors. The disallowed sales were due to Oracle's selling its products on a trial basis. Revenue from trial software issues might never be realized, according to auditors.

Moreover, Oracle's customers had begun to complain that the company had promised features it never delivered: another by-product of unwise sales tactics. Oracle's trademark selling tactics were failing the company, leading to losses rather than to gains. Plus, Ellison defended his company's performance and its status without offering any suggestions for change in sales tactics or policies. Another reason why the company was not financially healthy in September of 1990 was because of the revelation of disgruntled customers and shareholders. Twenty lawsuits were filed against Oracle immediately after the March 1990 revelations.

The lawsuits revealed startling news about potential fraud. "Investors vented more outrage when it was disclosed that six Oracle officers profited by selling 645,000 shares before the March earnings disclosure," (p.77). Financial statements issued in the third and fourth quarters of 1990 were also shown to be faulty. Unethical behavior itself does not indicate a company's relative level of financial health. However, the unethical trading behavior does indicate that the Oracle officers knew something about their company's financial status that shareholders did not.

When Ellison told reporters that the company was being significantly restructured, that ten percent of its domestic workforce was being laid off, and that several Oracle managers were also being fired, he revealed that his company was not in as fiscally sound a state as investors had believed just a year earlier. Ellison also admitted that revenue growth projections for the next fiscal quarter and for the next fiscal year were far lower than expected.

Oracle Systems Corporation still retained the lion's share of the DBMS market in 1990, even after Ellison's announcement and the plunge in share price. However, in September of 1990 Oracle's bubble had burst. Not only had share prices plummeted from $28.375 to $8.125, but projected earnings were down from 50% to 25% for the following year; 30% from 50% for the following quarter. Lawsuits plagued the company, investors were weary and wary of misrepresentation and false fiscal reporting, and customers grew increasingly suspicious about Oracle's ability to live up to their technological promises and product innovations.

For these reasons, the company did not have a clean bill of financial health by the end of 1990. 2. Since 1990, Oracle has remained an industry leader but its market share has declined significantly as competitors have risen to the occasion, taking advantage of Oracles diminished reputation since its peak in 1990. In fact, IBM has recently overtaken Oracle in the database software market (Gilbert 2002). The recent decline in Oracle's share price is directly related to revenue losses and the loss of its status as the DBMS leader.

Investors shrink away from companies with declining revenues and may look elsewhere to invest in DBMS systems. Underlying causes of Oracle's loss in both revenues and in market share can be attributed to similar issues that plagued the company in 1990. For example, if Oracle is still selling its database software on trial bases to consumers then auditors may remain unwilling to allow the projected profits from those potential sales. Projected sales from trial issues of software may never pan out to become actual sales.

Furthermore, the loss of market leadership indicates that the company may not be investing enough into product development. Oracle may be disappointing its customers with a lack of feature-rich DBMS products and companies like IBM may have been able to sell more DBMS because of a more full-featured or more highly specialized product line. Although Oracle claims to have diversified, the company might not have diversified its product line enough to make up for loss of revenue or sales.

The layoffs, management restructuring problems, and lawsuits that caused the steep decline in share prices.