Benefiting from dramatically higher applications license revenues -- including a growth spurt from newly acquired Siebel Systems Inc. -- Oracle today revealed that its revenues for the fourth quarter rose 25% to $4.8 billion compared to the same period last year.
Oracle's net income for the period ended May 31 was $1.3 billion, up 27% compared to the same period last year.
The strong fourth-quarter results boosted Oracle's performance for the full year. Oracle's net income for the year rose 17% over 2005 totals to $3.4 billion. Revenues were up 22% to $14.4 billion.
Oracle's applications business was the Redwood City, CA, company's fastest-growing segment in the fiscal fourth quarter. New software license revenue from applications in the period reached $640 million, up 83% compared to the like quarter a year ago. Total applications software revenues for the period hit $1.3 billion, a 66% increase from the fiscal fourth quarter of 2005.
"We saw extraordinary growth in the quarter," said Oracle CEO Larry Ellison on a conference call with financial analysts. "We are growing the applications business faster than SAP."
Much of the growth in Oracle's applications business has come through acquisition. Over the past 18 months, Oracle has acquired several enterprise application vendors, including PeopleSoft, JD Edwards, and Siebel. In the fourth quarter, Siebel delivered a significant boost to Oracle's revenues. Revenue from the sale of Siebel CRM software for the quarter was $81 million, nearly double what Oracle had expected, said co-President and CFO Safra Catz.
Oracle's applications business, however, also saw significant organic growth during the quarter. Excluding revenues from Siebel and Oracle's Retek acquisition, Catz said, license revenue from the company's applications business grew 56%.
Oracle's growth came both from increased deal activity and from a higher number of large deals. During the quarter, the number of transactions valued at over $1 million grew by 39% compared to the year-earlier quarter.
Oracle officials attributed the rise in large deals at least in part to the company's broader product line. Many deals, they said, now include Oracle's database, application, and middleware products bundled as suites.
"Customers are now seeing the value of having all of these products inside of Oracle," Ellison said. "For almost any problem [customers] have, we have a product for it now."
Officials also attributed the momentum in application product sales to growing customer comfort with Oracle's product and strategy roadmap. In recent months, the company has studiously attempted to spell out how it will merge its different application product lines into a cohesive whole, a strategy it calls Fusion. Customers also have been reassured by Oracle's willingness to continue to upgrade and support current application products, said Charles Phillips, the company's other co-president.
"Customers are more comfortable with our strategy," Phillips noted. "They are moving past 'wait-and-se' mode to 'get busy' mode."
Oracle officials, however, stopped short of declaring the growth of its applications business an indication that businesses generally are opening up IT spending. "We can't tell at this point if it's an IT spending indication or a direct response to the state of the economy or people getting more comfortable with Oracle and buying more products," Catz cautioned. "But it does seem more Oracle-specific."
Oracle officials did, however, suggest that they expect strong demand for the company's products to continue. Although the first quarter is usually Oracle's slowest of the year, Catz said, the company expects GAAP earnings per share to grow from 10 cents to 11 cents in the first quarter of fiscal 2007, with software revenue rising between 23% and 25% compared to the first quarter of 2006.
Reversing a recent slow-growth trend in its core product lines, Oracle also reported a fourth-quarter uptick in its database and middleware business. At $1.48 billion, database and middleware new software license revenue for the quarter was up 18% over the like period a year ago. Total database and middleware software revenue, at $2.68 billion, was up 15%.
Not surprisingly, considering its strong growth, Oracle experienced rising expenses during the quarter. Overall operating expenses rose by 21% compared to the year-earlier quarter. Pacing that rise were sales and marketing expenses, which were up by 36%, due in part to increased compensation levels, Catz noted.
Oracle's cost of providing services, however, also grew by 24% during the quarter. Catz attributed part of that increase to the cost of maintaining the on-demand CRM service which Oracle acquired along with Siebel. Catz said the contractor providing Siebel's on-demand infrastructure had not reduced costs commensurate with the increasing scale of that business. Oracle plans to move the CRM on-demand infrastructure, Catz said. (Siebel had previously identified IBM as the provider of its CRM on-demand infrastructure.)
Overall, Oracle reported that, while it is still relatively young, its on-demand business grew revenues dramatically in the quarter to $130 million, up 62% compared with the year-earlier period.