Oracle Corp.'s growth-through-acquisition strategy took a hit in the fiscal first quarter ending August 31 as enterprise applications-related revenues -- particularly from new software licenses -- were significantly lower than in the prior period, the first to include the company's acquisition of PeopleSoft.
New license revenues from applications -- calculated on a non-GAAP (generally-accepted accounting principles) basis -- were $127 million, down 63.7% from the previous quarter ending in May.
Poor revenue from new application licenses was partially offset by relatively stronger applications license update, support and services revenues. Overall, Oracle's non-GAAP applications-related revenues for the period were $1.1 billion. While that figure was up 118% from applications revenue for the year-earlier first quarter, it was down 22.8% compared with applications revenue for the fourth quarter ending in May.
Oracle officials, in a conference call with financial analysts, noted that the company's first quarter results are traditionally weaker than those for the fourth fiscal quarter. "There's an awful lot of momentum [in Oracle's applications business]," insisted Oracle President Charles Phillips.
Compared with the first quarter of last year, Oracle saw particularly strong revenue growth in its E-Business Suite financials and HR applications products, Phillips noted.
Phillips, however, acknowledged that some customers "were waiting to hear more from the company" about its applications strategy. Oracle, he said, outlined much of its strategy -- including Project Fusion, a plan to consolidate all of its enterprise application product lines into a single suite -- at the company's OpenWorld user conference in San Francisco this week.
Acquisition-fueled applications business growth helped Oracle overcome flat fiscal fiscal first-quarter sales in its core database business. Overall, the company reported first-quarter revenues of $2.7 billion, up 25% compared with the year-earlier quarter.
Net income for the quarter was $519 million, up 2% from the like period last year.
In the most recent quarter, database and middleware-related (non-GAAP) new license revenues were up only 2% compared to the year-earlier quarter. Middleware license revenue, said Phillips, was up 33%, suggesting that database new license revenue may have declined or been flat. Oracle officials said two large software license deals slipped out of the company's first quarter and will be reported in the current quarter.
Oracle CEO Larry Ellison emphasized that the company's flat first-quarter database revenue "is not indicative of anything." He noted that the most recent quarter's results appeared poor by comparison with last year's first quarter in which database revenues were up by about 20%.
And he noted that, spread out over the past year, database sales have grown by an average of between 9% and 10% per quarter.
Ellison did note, however, that Oracle has been facing "very tough price competition at the low end of the [database] market with Microsoft."
For the quarter, Oracle's total operating expenses grew faster than revenues, increasing 37% to 2.1 billion. A big chunk of that increase went into the company's research and development budget, which was up by 32%. Much of that increase, said Ellison, was related to Project Fusion.
Despite flat database sales and falling quarter-to-quarter applications license revenue, Oracle continues to generate significant cash, much of which is being used to finance the company's acquisition strategy. For the quarter, Oracle generated $3.6 billion in cash.
Based on that figure and accounting for the cash that Siebel is expected to have at the time of the acquisition, Oracle expects to be able to pay for its purchase of the CRM software company within one year, CFO Greg Maffei told analysts.
Separately this week, Oracle continued its applications acquisition strategy, announcing plans to purchase logistics and transportation software vendor G-Log (King of Prussia, PA.) Oracle did not reveal how much it paid for the privately-owned company.
Financial analysts, however, estimated the figure at between $60 million and $80 million. G-Log had estimated revenues last year of $20 million.
Oracle officials said the G-Log applications will become the core logistics and transportations modules within the Project Fusion suite.