Benefiting from strong growth in its applications and middleware businesses, Oracle Corp. yesterday said its revenue and earnings soared in the first fiscal quarter, ended Aug. 31.
Overall, Oracle reported revenue of $4.5 billion for the quarter, up 26% compared with the first quarter of fiscal 2007. Oracle's net income for the quarter, $840 million, represented an increase of 25% over the $670 million logged in the year-earlier period.
"It was an all-around spectacular quarter for us," Oracle Chairman and CEO Larry Ellison told financial analysts during a conference call. "We are very pleased."
Oracle's applications business, where the company has pursued a growth-by-acquisition strategy, was a major source of first-quarter performance strength. The company said applications new license revenue was up 65% to $376 million. Overall, software revenue from Oracle's applications was up 36% to $1.26 billion.
The company's middleware business also grew during the quarter. New license revenue from Oracle's database and middleware businesses — which Oracle combines for financial reporting purposes — was up 23% to $711 million, and overall database and middleware revenue, at $2.2 billion for the quarter, was up 22%.
Oracle's middleware products, however, represented the bulk of the growth in that category. Oracle Co-President Charles Phillips told analysts that Oracle's middleware revenue grew by 129% during the quarter and that the company now has 53,000 middleware customers.
Officials attributed the strong first-quarter results to a combination of a large installed customer base and increased revenue from acquisitions.
"A few quarters ago we crossed the line, and margins have started to increase as we can recognize more of the revenue [from new acquisitions,]" Oracle Co-President Safra Catz told analysts. "We do expect that to continue."
In the first quarter, for example, Oracle received revenue contributions of $80 million from its Hyperion Software acquisition and another $7 million from its Agile acquisition.
Catz noted that the first fiscal quarter is usually Oracle's slowest. She described the company's current order pipeline as "extremely strong."
The strong first-quarter results, Ellison said, advanced Oracle's goal of gaining market-share leadership in its three principal markets: database, middleware, and applications. Oracle already leads the database market, he noted. And the company in the past year gained ground on its number one competitor, IBM.
In middleware, where Oracle ranks number three behind Microsoft and IBM, Oracle is gaining market share on IBM, Ellison claimed. "If we maintain our trajectory, and if IBM [maintains theirs], we could pass them by the end of this year," he said.
Ellison described applications rival SAP as a non-factor in middleware. "Since Shai Agassi's abrupt departure from SAP, you never hear anything about NetWeaver anymore. They're not doing very well," Ellison asserted.
In applications, where Oracle trails SAP, Ellison claimed that Oracle is gaining market share, noting that SAP reported an 18% increase in new applications license revenue in its most recent quarter, compared with Oracle's 65%.
Ellison attributed Oracle's strong applications results to its strategy of cross-selling applications to its existing large and mid-market customers. The company will continue to pursue this strategy, emphasizing industry-specific extensions, such as billing applications for telecommunications providers.
Ellison contrasted Oracle's strategy with SAP's, noting that this week his rival launched its Business ByDesign software-as-service offering targeting small and medium-sized businesses. SAP has said it hopes its SMB focus will enable it to more than double its customer base to 100,000 by 2010.
Oracle has no plans to emulate SAP's focus on the SMB market, Ellison said. "We've looked at going down-market, and we think it's very hard to make money because there's no synergy," he said. He noted that an SMB push would require Oracle to develop new products and create a new distribution channel focused on small companies that Oracle currently does not call on. "It's an interesting market because it's large, but we haven't figured out a way to make substantial money in that market," he said.
Oracle's first-quarter growth was distributed geographically, with revenue from the Americas growing 21%, revenue from Europe/Middle East/Africa growing 34%, and revenue from Asia Pacific growing 26%. The only blemish appeared to be Oracle's database and middleware business in the Asia Pacific region, where new license revenue was up just 4%. Phillips attributed that to large deals that failed to close during the quarter but are expected to do so in the second quarter.
Oracle's strong performance resulted in a significant rise in cash on hand at the company, with free cash flow growing by 40% to $6.2 billion during the quarter.
Oracle expects its strong results to continue during the second quarter. Catz told analysts that the company is projecting second-quarter new software license revenue to grow by 15% to 25%, and total revenue to be up by 19% to 21% on a GAAP basis.