Oracle Sales Go Boom in Its First Fiscal Quarter

Published: October 3, 2007

by Timothy Prickett Morgan

Software maker Oracle's application acquisition strategy and recent upgrade cycle for its middleware and database is clearly paying off. In its first quarter of fiscal 2008 ended August 31, Oracle reported that its sales rose by 26 percent to $4.5 billion, besting the estimates that it had encouraged Wall Street to set earlier this summer. Net income rose in lockstep, by 25 percent, giving Oracle $840 million that fell to the bottom line.

Oracle's total software sales were up 26 percent in the quarter, to $3.5 billion, with new software license sales rising even faster, up 35 percent to $1.1 billion in the quarter. New application software license sales, driven by myriad acquisitions, rose by 65 percent, while new licenses for database and middleware software were up only 23 percent. The biggest piece of Oracle's sales came from software license updates and product support, which rose by 23 percent to $2.4 billion. Services sales also rose by 26 percent, to $1.1 billion. New software license sales grew at the highest rate Oracle has seen in ten years, and even though database and middleware sales growth was lower than for applications, the growth rate that Oracle saw for these products--even as sales must have stalled prior to the Oracle 11g database announcement--were the highest that the company has experienced in seven years.

"Oracle passed IBM to become the number one database company a long time ago," bragged Larry Ellison, Oracle's chairman and founder, in a statement accompanying the financial report. "If we continue to grow our middleware software business at the same rate we grew it this quarter, Oracle will challenge IBM for the number one position in middleware by the end of this year."

The reason this is the case, of course, is that Oracle owns the second largest revenue stream for enterprise applications after SAP. When you have the default database for Unix and Linux and are vying with Microsoft for the top spot on its own Windows platform and you sell lots and lots of application software, too, it comes as no surprise whatsoever that customers decide to take the whole Oracle stack--middleware, database, and apps. And, if Oracle Enterprise Linux catches, it will be no surprise when people opt for that Red Hat- derived Linux, too.

If you want to have one throat to choke, imagine how hard you can squeeze when you know it is Ellison's neck you have in your hands. . . .

Oracle, by virtue of its PeopleSoft and JD Edwards acquisitions from January 2006, has a big presence in the midrange, including the System i product line but also a lot of Windows and Unix shops. And because of that, Oracle's president, Charles Phillips, took a swipe at SAP's Business ByDesign hosted application suite, which was previewed last week. "We continue to take applications market share from SAP," said Phillips. "In Q1, Oracle's applications new license sales grew 65 percent compared to SAP's new license sales growth rate of 18 percent in their most recently completed quarter. We like our growth strategy of expanding into high-end, industry-specific vertical software as opposed to SAP's growth strategy of moving down market to sell software to small companies."

Oracle's value shot into the stratosphere in the late 1990s, since it was the default database for the dot-com boom. In the court of 18 months, the company's stock soared, nearly hitting $200 billion in market capitalization, and by early 2002, when the market had crashed, Oracle's value, as measured by Wall Street and its stock price, fell right back down again. But since that time, Oracle has made slow and steady progress, and now has a market cap of $106 billion. The company's sales and profits have nearly doubled in the past five years, and given all of those acquisitions and the opportunity to cross sell, Oracle should be able to grow organically if it doesn't want to blow its $6.2 billion in cash and equivalents on more deals to fuel growth.

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