Posting solid applications and services revenue gains, Oracle Corp. last night said that GAAP net income in its second fiscal quarter ended November 30 jumped 21% on a 26% gain in total revenues. Total revenues in the quarter were $4.2 billion, while net profits were $967 million.
The big database, applications, and middleware vendor said that total GAAP software revenues grew 23% to $3.2 billion in its 2007 fiscal second quarter, from $2.6 billion in the like period last year. New software license sales, however, increased only 14% to $1.2 billion, a point under the 15%-20% range that Oracle had predicted earlier.
Applications software revenues for the second quarter grew 39% to $1 billion. As part of that total, new software application license sales jumped 28% to $340 million and maintenance revenues soared 45% to $728 million. Database and middleware revenues, however, rose 16% to $2.1 billion, with new licenses of database products inching up only 9% to $867 million. Service revenues rocketed 41% to $949 million.
Second quarter GAAP earnings per share were up 20% to $0.18 cents.
Despite the impressive gains, Oracle President and CFO Safra Catz expressed some disappointment during a conference call with financial analysts regarding how Oracle executed in the quarter, particularly in new software license sales. She said Oracle had hoped that sales in this area would have come in at the high end of the 15%-20% range the company had predicted, but said that didn't happen due to a number of contracts that failed to close in the quarter.
"As we looked at the new license results, it basically came down to execution on a number of deals that didn't close in the quarter," Catz said during a conference call with financial analysts. She said Oracle expected those missed deals to close in the third quarter as a result of better focus and pipelines management. "Focus to us means reducing the time spent on internal meetings and non-core sales activities, leaving the field more time to work with customers and close deals," Catz said.
Ray Wang, an analyst with Forrester Research, said that he was neither surprised nor worried about the 14% number Oracle turned in on new software license sales. "There may be execution issues, but the market is still really healthy," Wang said. "I think there is room for Oracle, SAP, and Infor to all do well."
Oracle also announced financial guidance for its third fiscal quarter and said that it was planning a major applications software introduction at the end of January. Catz said that Oracle expects total revenue for the third quarter to grow 23%-25% on a GAAP basis and net income to grow 24%-29%.
On yesterday's conference call, Oracle president Charles Phillips told analysts that on January 31, Oracle will announce new versions of five ERP products, including Version 12 of its E-Business Suite and new releases of Siebel, PeopleSoft, and JD Edwards applications. The introductions will be made at an event in New York City, he said.
In discussing the fiscal second quarter results with analysts, Oracle CEO Lawrence J. Ellison praised what he called the company's "dual strategy for growth," which consists of acquisitions in vertical industries as well as new product introductions. Ellison cited the retail, telecommunications, banking, and utilities sectors as vertical segments in which Oracle is demonstrating strength. Manufacturing was not mentioned.
He emphasized the retail sector, saying that Oracle's acquisition strategy in this area has enabled the company to compete effectively with arch rival SAP. He said that "eight out of 10 major retailers" are now using Oracle software and only one is using SAP. Ellison noted, however, that what he described as a $10 million deal with Wal-Mart did not close in the quarter, but he predicted that Oracle would be recognizing revenue from the giant retailer over the next three quarters. "Retail looks very, very strong going forward," Ellison said.
In the new products area, Ellison said the company's Secure Enterprise Search technology will be key to its dual-growth strategy. "We think this is a very important new area," Ellison said. "This is not only a revenue generator, but a significant differentiator for us in technology going forward."
Forrester's Wang said this tack has been effective for Oracle. "The dual strategy has enabled Oracle to compete with SAP," he said.