Oracle Expects Very Tough Q4 as Fiscal Q3 Meets the Street

Published: March 23, 2009

by Timothy Prickett Morgan

Here's another indication that the global economy is bad, aside from the rumor that IBM is trying to buy its archrival, Sun Microsystems. Software powerhouse Oracle, the first of the big Silicon Valley startups, last week announced that it would be giving a dividend to stock holders.

Oracle reported its financial results for the third quarter of fiscal 2009, ended February 28, and the good news was that despite the economic meltdown, it basically met Wall Street's expectations. (Like we should give much of a damn what Wall Street thinks after the messes--plural--they got us into. . . . ) In Q3, new software license sales at Oracle fell by 6 percent to $1.52 billion. Software license updates and product support sales were up by 11 percent to $2.92 billion, yielding software sales up 5 percent to $4.43 billion. Adding in $1.02 billion in services sales (down 8 percent), gave Oracle $5.45 billion in sales for the quarter, up only 2 percent. The strengthening of the U.S. dollar caused a compression of 9 percent in overseas sales. Oracle had to write down some assets, and that put pressure on net earnings, which fell by 1 percent to $1.33 billion in the quarter. All things considered, not too bad.

New application software sales, where Oracle has some play in the Power Systems i space thanks to JD Edwards, fell by 12 percent to $396 million in the quarter. License sales to database and middleware software fell by 4 percent to $1.12 billion. In late calendar 2007, which was in Oracle's fiscal 2008, these application and database license sales were growing at very high rates, and started to sputter in the summer and are now declining. Oracle will tell you all about tough compares, but contraction is contraction. New software sales are a current indicator for the state of the economy and a leading indicator for future support revenues. Oracle is doing as well--or better--than any other IT vendor, to be fair. But down is still down.

And down the company is going in fiscal Q4. In a conference call with Wall Street analysts last week, Safra Catz, co-president with Charles Phillips at Oracle, said that the company expected new software license sales in Q4 to be down anywhere from 17 to 27 percent, with overall sales down between 10 and 14 percent. And to cushion the blow, Oracle announced that its board of directors had authorized the first-ever dividend payment to shareholders. Oracle is going to pay 20 cents a share per year, payable at 5 cents per share quarterly. This is not a huge amount of money--IBM pays 50 cents a share each quarter--but it is a start toward something resembling sanity. I want corporations to make money and pay dividends and stop using Wall Street like it was Las Vegas. So kudos to Oracle, but that was a pretty stingy dividend; 10 cents a share was more reasonable, relative to IBM. And even IBM's dividend is not as high as it used to be.

I think investors of stocks of all kinds would be happy with a decent dividend as well, having seen share prices wiped out in the last year. I would gladly take a piece of regular earnings instead of stock hyping any day.

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