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Oracle Shows Strong Profits, Though Applications Slip Sign Up to receive Daily News Alerts in your E-mail Inbox
Posted on Friday, September 19, 2008 4:49:33 PM |
Oracle Corp. yesterday reported strong overall revenue growth and profitability in its first fiscal quarter, although revenue from new licenses of applications was down sharply compared with the same period a year ago.
Oracle officials, however, said the drop-off in the company’s applications business was not caused by current uncertainties in the global economy. Instead, said Oracle Co-President Safra Catz, the slip was due primarily to the fact that the most recent quarter’s results are being compared with a year-earlier period in which Oracle’s application new license revenue soared by 65%.
“It was a very difficult comparison,” Catz told financial analysts on a conference call. “That’s really all you’re seeing.”
“We’re extremely pleased with our execution and growth in our applications business since our applications license revenue has more than tripled over the last three years,” Catz added.
For the first fiscal quarter ended Aug. 31, Oracle reported overall revenue of $5.3 billion, up 18% compared with the first quarter of last year. The company’s net income of $1.1 billion was up 28% compared with the year-earlier period.
Overall, Oracle saw a 14% rise in new software license revenue to $1.2 billion. Revenue from maintenance and product support was up 23% to $2.9 billion, while services revenue rose 9% to $1.2 billion.
Catz noted that Oracle’s new software license results were solidly in the middle of the range the company had predicted for the quarter.
Oracle also reported a non-GAAP operating profit margin of 40.1%, the highest first-quarter operating margin in the company’s history. CEO Larry Ellison, in remarks to financial analysts, attributed the company’s impressive profitability to the fact that half of its business now comes from ongoing software maintenance contracts, which he called “an extremely high-margin business.” Ellison also attributed the growing profit margins to Oracle’s ability to improve its market share, particularly in its database and middleware businesses.
Oracle’s database and middleware businesses outshone applications in the first quarter. Database and middleware new license revenue grew 27%, and overall software revenue from database and middleware was up 27% to $2.8 billion. Middleware specialist BEA Systems, which Oracle acquired last year, contributed $84 million in the quarter.
Oracle’s applications business, however, took a step back, particularly compared with its strong performance in last year’s first quarter. Applications new license revenue, at $331 million for the quarter, was down 12% from the year-earlier period. That was somewhat offset by 18% growth in revenue from maintenance and support, which totaled $1.4 billion.
Oracle’s applications business was particularly soft in its Europe/Middle East/Africa region, where new license revenue was down 23% compared with the year-earlier period. Applications new license revenue fell 9% in the Americas region, while it rose just 1% in the Asia/Pacific region.
Exposure of the applications business to the banking industry — the center of much of the current economic turmoil — is “in the low single digits,” according to Catz, who called Oracle’s exposure “immaterial.”
Catz said Oracle is not expecting any slowdown in order conversion rates, and she called Oracle’s applications order pipeline “healthy.” Further, she said the company is not seeing an unusually competitive pricing environment for applications.
It’s possible, Catz said, that Oracle is immune from some of the impact of the current economic crisis.
“The company has so much momentum and such a broad product line that, if a customer is buying, they’re more likely to buy from us … If they’ve got to decide on something not to spend on, it’s probably with a smaller guy or on something that is less strategic or less important,” Catz said.
Oracle’s improved profit margins helped push the company’s cash and cash equivalents on hand over the $8 billion mark at the end of the quarter. The company may use part of that to continue its acquisition binge, Catz said.
“We’re not going to sit around on it,” she told financial analysts. “We’re going to send it back to the shareholders or acquire things that give us earnings…”
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