The Economy Gives Oracle a Slight Haircut
June 29, 2009 Timothy Prickett Morgan
The continuing lethargy in the global economy put pressure on revenues and profits at software giant and perhaps soon hardware vendor Oracle in its latest quarter, but the numbers are not as bad as some IT vendors have shown. That is for sure, and a testament to the mini-monopolies that Oracle has been able to build for itself over the years.
In the fourth quarter of fiscal 2009 ended May 31, Oracle’s revenues were $6.86 billion, down 5 percent from the year-ago period. Not surprisingly, new software license sales in the quarter fell by 13 percent to $2.74 billion, but thanks to its expanding software base (and very likely a price increase that was rumored earlier in the year), Oracle’s software license update and product support sales rose by 8 percent to $3.05 billion in the quarter, which meant overall software revenues were down only 3 percent to just under $5.8 billion. Oracle’s services sales hit a wall even harder than new software licenses did, dropping 16 percent to $1.06 billion. Net income for the quarter dropped by 7 percent to $1.89 billion.
That’s not great, and certainly not like the growth that commercial Linux distributor Red Hat posted last week, with sales up 11 percent to $174.4 million and net income up 7.1 percent to $18.5 million. But Red Hat is a much smaller and much less diverse company, and Oracle is bringing almost as much money to the bottom line as IBM (which had net earnings of $2.3 billion in its most recent quarter) on about a third of the revenue stream (IBM had $21.7 billion in sales in the first quarter).
Shareholders of Sun Microsystems will vote on the $5.6 billion takeover of the company by Oracle on July 16, and unless something really twisted happens to warp the fabric of spacetime, the deal will go through. And unless Oracle is prepared to get rid of huge numbers of Sun employees and flush all kinds of research and hardware projects, Oracle is going to be explaining some substantially lower earnings in the coming quarters. Even if Oracle cuts Sun to the bone, it may cut enough that it can’t create and sell Sun gear properly, beginning a costly nightmare for Oracle investors and the company that will be difficult to untangle. Then again, if Oracle makes the tough cuts that Sun’s own management seemed incapable of doing for the past decade, and can keep the spirit of innovation alive, Oracle could be a serious, serious contender in the data center hardware racket. And possibly in a way that Cisco Systems might turn out to be as it approaches systems from the networking side and offers its own flavor of integrated system as Oracle says it intends to.