As the revenue growth as well as the margins that we saw at the peak of the bubble would have to be ignored in the calculations. The real question is whether they can they get back to the pre-bubble scenerio. It would be quite tough. They have both short term and long term challenges.
This is my two cents on their 3 revenue streams: database, applications and services
(A) Database -- under pressure from sqlserver. AS LONG AS THE PERCENTAGE OF SERVERS RUNNING UNIX REMAINS STABLE, THIS PART OF THE BUSINESS SHOULD HOLD UP WELL. Long term growth is likely to be in single digits.
(B) Applications -- This part of the business is experiencing hiccups due to bugs in latest release 11i as well as poor corporate spending. Don't see why both the problems wouldn't get fixed in the long term. I am fairly optimistic about their applications business.
(C) Services -- Long term revenue growth as well as margins are likely to be under pressure. Firstly, lot more internal IT department folks are familiar with the products which makes it unnecessary to pay premium rates for Oracle consulting. Secondly, no S&P 500 company (even those with deep pockets) would want to spend the kind of money they spent in the past on IT. I don't believe there is the return on investment when a truthful analysis is done. This is my guess, but I could be proven wrong. I won't be surprised if the IT departments with their close association with finance departments continue to negotiate large budgets.
I think Oracle will be able to compete pretty well with SAP and PSFT and even IBM/Informix/DB2. But, the one I would really watch out for is MSFT if WIN-NT/Intel platform can capture the server market. I would also worry about reduced IT spending in long term.
But, inspite of some of the challenges I think ORCL has a strong franchise that should continue to be profitable even in a slow growth environment as IBM/cobol was. It is not easy to replace either the ORCL database or the ORCL Apps suite once implemented. Customers will continue to pay for the upgrades. Can new customers choose other platforms. Sure they can. But given the high margins and low CAPEX, orcle would be a worthwhile investment if it can be obtained at a decent price.
Based on my vague and approximate calculations, I think it's a good investment below $7.