Oracle Soars in Fiscal Q1, But Applications Sales Soften

September 22, 2008 Timothy Prickett Morgan

Systems and application software maker Oracle reported its financial results for the first quarter of fiscal 2009 last week, and both sales and profits were up smartly in the quarter. But, somewhat ominously and not really all that surprisingly given the jumpiness in the world’s economies, sales of new application software licenses were soft.

In the three months ended August 31, Oracle’s overall sales rose by 17.7 percent to $5.3 billion, and net income shot up by 28.2 percent to just under $1.1 billion. It would be hard to find a company, large or small, that did better in a similar quarter in the software racket, bringing more than 20 percent of sales to the bottom line with nearly 20 percent growth. Clearly, Oracle’s massive consolidation moves in the application, database, middleware, and application development tool areas have paid off handsomely–something that only makes Oracle founder and chairman, Larry Ellison, that more smug. (Let’s face it. He can afford to be pretty smug.)

Not all cylinders were firing equally in the quarter, of course. They never do at large companies, even when the economy is humming along nicely. Oracle’s new software license sales (across all product lines) only rose by 13.8 percent to $1.24 billion, and software license updates and product support made up a lot of the difference to make Oracle’s numbers, with sales in this area up 23.2 percent to $2.94 billion. Services sales-by which Oracle means implementation and other kinds of services not relating directly to product support–accounted for $1.16 billion, up only 9.4 percent.

Within the application area–which is where i shops tend to interface with Oracle thanks to its ownership of the JDE World and EnterpriseOne suites–new software license sales in fiscal Q1 fell by 12 percent to $331 million, and only by pumping up updates and support sales did Oracle pull some growth out in the quarter for applications. In the Americas, new license sales for application software fell by 8.5 percent to $182 million, while in the EMEA region new application sales fell by a staggering 23.6 percent to $94 million. App sales in the Asia/Pacific region rose by a skinny 1.9 percent to $55 million. Across all regions, update and support sales for applications (which include Oracle Financials, PeopleSoft, Siebel Systems, and lots of other application suites aside from the JDE stack) rose by 17.7 percent to just over $1 billion. If you add it up, Oracle’s the application software biz (new licenses plus support) had sales of $1.37 billion in the quarter, up 8.9 percent.

The big winners for Oracle in Q1 were middleware and databases, which together had new license sales of $906 million, up 27.4 percent, and software updates and support sales related to middleware and databases of $1.9 billion, up 26.4 percent. Database and middleware sales grew by 18 percent in the Americas, but rose by 27 percent in EMEA (but only 19 percent at constant currency) and increased by 46 percent in Asia/Pacific (up 39 percent in constant currency).

Oracle’s Safra Katz, the company’s chief financial officer, reminded Wall Street in a conference call that Oracle posted 65 percent growth in application software sales in the year ago quarter, making for a difficult compare, and added that application sales have tripled over the course of the past three years. While this is all true, considering all the companies that Oracle has acquired and the synergies it has sought, software license sales should not, in theory, lag aggregate sales for the company. Ellison, speaking on the same call, said that Oracle is the number one seller of customer relationship management software, and the number one provider of ERP software in North America and is the top provider of application software for retailers, communications, and a few other industries globally. Katz said that Oracle expected its application business to grow in fiscal 2009, but that in any particular quarter “things are bouncing around quite a bit” and quarterly comparisons are not necessarily as meaningful as long-term trends.

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