Continuing to outperform key competitors such as SAP AG, Oracle Corp. yesterday reported a strong, 35% increase in third-quarter net income and 27% growth in revenue.
Oracle's results for the quarter, ended Feb. 28, 2007, exceeded the company's earlier guidance and were led by substantial gains in its applications business, which saw a 57% increase in application new license revenue and total software revenue growth of 36%. The third-quarter applications results benefited from Oracle's acquisition last year of Siebel Systems. Even excluding Siebel's results, Oracle would have seen a 32% jump in new applications license revenue for the quarter, Oracle President and CFO Safra Catz told analysts.
Noting that arch-rival SAP reported a 7% increase in revenue for its most recent quarter, Oracle CEO Larry Ellison told analysts, "We have a good chance to catch and pass SAP in the overall applications business. We closed the gap and gained applications market share again this quarter." Ellison added, "SAP is still larger in the applications software business, but we're gaining on them consistently and rapidly."
For the quarter, Oracle reported total revenue of $4.4 billion, up from $3.5 billion in the 2006 third quarter. Overall new license revenues — which include Oracle's middleware and database businesses, in addition to its applications — were up 27% to $1.4 billion, and software license update and support revenue grew 24% to $2.1 billion.
Oracle's net income for the quarter was $1 billion, up from $765 million reported in the year-earlier quarter.
Besides growing new applications license revenue by 57% to $423 million, Oracle saw applications revenue from license updates and support increase by 27% to $769 million. Overall software revenue from Oracle's applications business grew 36% to $1.2 billion.
Oracle officials attributed the strong applications results to the company's vertical-industry focus and to customers' beginning to understand Oracle's overall applications strategy, which calls for the company to continue to extend and support existing product lines while building a new, converged applications suite, which Oracle calls Fusion. Recently, for example, Oracle unveiled five new releases of existing products, including its PeopleSoft, JD Edwards, and E-Business Suite applications.
"In contrast to three years ago when people had a lot of questions about our strategy, now they believe in it and are consistent with it, and they are voting with their dollars," said Oracle President Charles Phillips in remarks to analysts.
Oracle's applications business, Ellison said, has also benefited from the strategy of emphasizing ERP sales to mid-size companies, as well as CRM and industry-specific extensions to the company's core ERP product. Oracle has been particularly successful selling large, industry-specific suites to financial services, retail, and telecommunications companies, Ellison said. He did not mention manufacturing as an area of particular vertical focus for Oracle.
Oracle also reported strong results for its middleware products. Ellison said middleware new license revenue grew by 82% during the quarter. That's far faster than license revenue growth reported by Oracle competitor BEA Systems, which, Ellison noted, has recently been in the 8% range. "Our middleware business is now larger than BEA," Ellison said. "It took us five years to catch and pass BEA, but we did it."
Growth of Oracle's core database business was not as robust. Together, the company's database and middleware businesses generated a 20% increase in software revenue. New license revenue was up 17%, and license upgrade and support revenue was up 22%.
For the quarter, Oracle saw strong growth across all of its geographies. Revenue from the Americas grew 25%. Revenue from Europe/Middle East/Africa was up 28%, while Asia/Pacific jumped 34%. In the company's applications product area, the Americas and Asia/Pacific generated the fastest growth, with new license revenue from applications increasing 69% and 89%, respectively. Applications new license revenue was up 29% in Europe/Middle East/Africa.
Oracle officials predicted that the company's business would continue to be strong in the upcoming fourth quarter, although comparative growth rates will moderate. That's partly because Oracle in the fourth quarter of 2006 reported particularly strong results, Catz said. The company said it expects fourth-quarter new software license revenue to increase by between 5% and 15%, and total revenues to be up, on a GAAP basis, by between 11% and 15%. Earnings per share for the fourth quarter are expected to rise to $0.30 from $0.24 in the fourth quarter of last year, reported on a GAAP basis. The projections, Catz said, do not include expected results from Oracle's recently announced acquisition of Hyperion Solutions Corp.
Ellison said Oracle would continue to look for acquisition targets that could further the company's vertical industry focus. He added, however, that Oracle does not need to continue acquiring companies in order to grow at a rate faster than 15%. As the company's faster-growing businesses — such as CRM applications and middleware — grow to represent larger percentages of Oracle's business, they will offset the company's slower-growing products — ERP and database software — and stimulate faster overall growth, Ellison predicted.