Oracle Firing on All Cylinders Again in Fiscal Q4

Published: July 15, 2008

by Timothy Prickett Morgan

While database, application software, and middleware software provider Oracle missed the growth expectations that Wall Street had in its fiscal third quarter ended in February, the company seems to have more than made up for it with a strong finish in the fourth quarter ended in May. Oracle's sales rose by 24 percent to $7.24 billion, and even at constant currency, the company's global sales rose by 18 percent. This is real growth, and the kind of growth that Oracle was after when it did what seemed like a zillion acquisitions over the past couple of years.

For the three month period, Oracle's software sales came to $5.97 billion, up 26 percent as reported and up 19 percent at constant currency, with new software licenses accounting for $3.14 billion (up 27 percent) and software updates and product support amounting to $2.83 billion (up 25 percent). Currency effects came to an average of about 7 percent of the company's growth, thanks in large part to the combination of a weak U.S. dollar and strong sales overseas. Oracle's services sales were actually a bit of a lag on the quarter, up 19 percent to $1.27 billion, or 12 percent at constant currency. Oracle was able to bring just a little over $2 billion to the bottom line, an increase of 27 percent compared to the fourth quarter of fiscal 2007, but at constant currency, net income only grew by 14 percent. By geographical region, Oracle booked $3.57 billion in sales in the Americas, $2.68 billion in Europe, the Middle East, and Africa, and $986 million in the Asia/Pacific region.

By product area, new application software sales, which includes the Oracle, Siebel, JDE, PeopleSoft, and a slew of other smaller application stacks, Oracle posted $989 million in new application software license sales, up 36.2 percent, a large jump compared to the essentially flat sales (and about half this level) Oracle had in the fiscal third quarter for application software. The company sold $1.04 billion in application updates and support in the quarter, up 25.5 percent. The other major product category for Oracle is database and middleware, which Oracle lumps together. Oracle sold $2.16 billion in new software licenses for databases and middleware in Q4, up 22.8 percent, with support and updates for these products generating $1.79 billion in sales, up 24 percent. New license sales for database and middleware products increased by only 16 percent in the Americas region, which is a sign of weakness in the U.S. economy, by new application license sales rose by 33 percent, which is encouraging.

Database/middleware and application sales (again, new licenses only in these geographical stats) were up 42 percent and 41 percent, respectively, in Q4 in the EMEA region, but at constant currency that works out to 27 percent and 31 percent, so don't get too excited. Still, that is really good growth. Ironically, new license sales for databases and middleware rose by only 6 percent in Asia/Pacific in Q4, and actually declined by 1 percent when reckoned in local currencies. But application license sales rose by 37 percent in the quarter (27 percent at constant currency). Something is going on in Asia, for sure, which is odd considering how strongly the Indian and Chinese economies are growing.

Charles Phillips, Oracle's president, conceded in a conference call with Wall Street analysts that execution was not good in Asia/Pacific, but did not elaborate. He did, however, try to explain why Oracle was growing so much against a macoeconomic climate that is dicey at best and in recession at worst. "I think it is more a market share gain than anything else," Phillips said. "Our strategy is resonating with customers. We also have tremendous up-selling and cross-selling opportunities because we have a lot of customers who are new to Oracle--at least on an enterprise-wide basis--and so they have a lot of Oracle products now and the ability for us to come in and tell a different story and the value they can get by adding to that. It's just different than it was a couple years ago."

For the fiscal 2008 year, Oracle racked up $22.43 billion in sales, up 25 percent, with $17.84 billion in software sales comprised of $7.51 billion in new software licenses and $10.33 billion in software updates and product support. Services sales for the year at Oracle came to $4.59 billion, and grew just a little bit less for the year that software and support sales. Oracle brought $5.52 billion to the bottom line for the year, an increase of 29 percent compared to fiscal 2007. Clearly, a lot of that dough came in the final quarter of the year.

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