Continuing its recent impressive financial roll, Oracle Corp. yesterday reported big first-quarter revenue and earnings gains that were led by strong growth in the company's enterprise applications business.
Overall, Oracle reported revenues for its first fiscal quarter, ended August 31, of $3.6 billion, up 30% over revenues reported in the first quarter of last year. Oracle's net income of $670 million for the quarter was up 29% over the year-earlier period.
Oracle experienced the strongest revenue gains in its enterprise applications business, where the company's aggressive acquisition strategy of recent years seems to be paying dividends. The company reported applications software revenues of $931 million for the quarter, up 57% compared with the year-earlier period. New license revenue from applications came in at $228 million, a 79.5% spike from the first quarter of last year.
The bulk of the growth in new applications license revenue came from increased sales of Oracle's existing applications products, said President and CFO Safra Catz in remarks to financial analysts. Oracle's new license revenue from applications excluding those of recently acquired companies Siebel Systems, iFlex, and Portal Software Inc. was $186 million, Catz said, which represented an increase of 46% from the year-earlier period.
"This is our strongest first-quarter license growth in five years, and there is no doubt that we are gaining share across all product lines," Catz commented.
Oracle's strong first-quarter applications performance came in the wake of recent disappointing financial results from archrival SAP AG and inspired Oracle CEO Larry Ellison to predict that SAP will soon be forced to emulate Oracle's aggressive acquisition strategy. On the conference call, Ellison said Oracle's recent acquisitions of companies such as Retek and iFlex have brought it industry-specific products, knowledge, and market share, particularly in financial services, retail, and telecommunications.
Until SAP launches an aggressive acquisition strategy of its own, Ellison predicted, "We will continue to gain market share, quarter after quarter and year after year."
Other parts of Oracle's business gained also. Database software revenue was up 10%, and revenue from the company's other middleware products rose 56% compared to the year-earlier period. The company's services revenues rose 33% to $846 million for the quarter, while revenue from on-demand products rose 49% to $125 million.
Oracle's "hot pluggable" middleware strategy and new optional database features contributed to strong middleware sales during the quarter, Oracle President Charles Phillips said. The hot pluggable strategy, based on industry standards, allows Oracle to sell its middleware products into non-Oracle environments such as SAP. Popular optional database products include those that allow for management of unstructured content, documentation of audit trails, and enterprise data searching.
Oracle also benefited from cross-selling its wide range of middleware and applications products to its growing customer base, which now numbers 275,000, Phillips pointed out.
In the applications market, Oracle's vertical strategy and its focus on mid-market customers has allowed the company to grow revenues and market share, Phillips said. In the first quarter, he noted, Oracle recorded 88 head-to-head competitive wins against SAP. Manufacturing company wins claimed by Phillips included Lockheed Martin and US Steel.
Oracle's recent ability to grow faster than rival SAP, Ellison told financial analysts, has been enabled by two factors: its standards-based middleware strategy and its acquisitions-enabled vertical market strategy. While Oracle has built its middleware strategy around standards such as Java and BPEL, Ellison said, SAP includes proprietary languages such as ABAP in its NetWeaver middleware strategy.
"As the market more deeply embraces SOA, SAP's non-standard ABAP approach to middleware is hurting [its] sales and helping us gain market share," Ellison noted.
Ellison also claimed that Oracle has a two-year lead over SAP in current efforts to develop a next-generation set of enterprise applications based on service-oriented architecture. While SAP has said it will release an Enterprise Service Architecture -- AN SOA-enabled set of applications -- by 2007, Ellison yesterday maintained that that date has been pushed back to 2010.
SAP officials today said Ellison is incorrect about SAP's next-generation product roll-out plans. At its recent TechEd conference, SAP announced plans to change the pace at which it rolls out product updates, giving customers more time to plan. But, said Mike Prosceno, vice president of marketplace communications at SAP, that does not mean SAP will renege on its promise of a new generation of ESA-enabled applications next year.
"There has been no change," Prosceno said. "Oracle is making a lot of noise to buy time they need to come up with Fusion."
Oracle's decision to grow through acquisition in certain key vertical markets also has helped the company gain market share over SAP, Ellison said. "We believe SAP must do the same or SAP will become progressively less competitive in several industries and continue to experience slowing growth," Ellison said.
SAP officials, however, said the company has no intention of changing its acquisition strategy. "We have made it clear we will do small tuck-in acquisitions to build out our solutions, not to build market share or buy customers," Prosceno said.
For its part, Oracle will continue its acquisition strategy, Ellison promised. Oracle's recent strong financial performance has allowed the company to grow its store of cash and cash equivalents on hand to $5.4 billion from $3.8 billion at this time last year.
"We will continue to acquire industry-specific applications and industry-specific knowledge," Ellison said.