Oracle Posts Strong Q4, Full-Year Results

Showing strong growth amid a worldwide economic downturn, Oracle on Wednesday reported fourth-quarter revenues of US$7.2 billion, a 24 percent rise compared to the same quarter last year, and total revenue for fiscal 2008 of $22.4 billion.

Fourth-quarter earnings per share were up 27 percent to 39 cents over the same quarter in 2007, and net income also rose 27 percent, to $2 billion. For the fiscal year, earnings per share stood at $1.06, a rise of 30 percent. Net income for the year was $5.5 billion, up 29 percent.

Excluding one-time charges, analysts polled by Thomson Financial had on average predicted earnings per share of 44 cents for the fourth quarter and $1.27 for the year.

Oracle's adjusted results beat those estimates, at 47 cents per share for the quarter and $1.30 for the fiscal year.

Fourth-quarter software revenues rose 26 percent to $6.0 billion.

On a geographic basis, Oracle showed stronger growth in the Europe, Middle East and Africa region, with fourth-quarter revenue of $2.68 billion, compared with $1.99 billion last year. Meanwhile, sales for the quarter in Asia-Pacific were $986 million, compared to $818 million in 2007. Fourth-quarter revenue in the Americas was $3.57 billion, up from $3 billion last year.

Middleware maker BEA, which Oracle recently acquired, contributed $93 million in new license revenue in the quarter, "exceeding our expectations," Chief Financial Officer Safra Catz said during a conference call on Wednesday.

However, Oracle expects BEA's new license revenue in the next quarter to be only $50 million to $60 million, she said.

Due to traditional seasonal slowdowns, adjusted earnings in the first quarter will drop as well, to 26 cents or 27 cents per share, according to Catz. That forecast was in line with analysts' consensus estimate of 27 cents.

But CEO Larry Ellison was characteristically bullish in regard to Oracle's future.

"We're going to remain number one in database and increase overall market share. We're doing that because we have better products than the competition," Ellison said.

Without giving specifics, Ellison said Oracle will announce "a major database innovation" in September.

But Ellison wasn't as bold when discussing certain initiatives and product lines at Oracle.

Asked about the progress of Oracle's long-simmering Fusion Applications, which are set to replace its various product lines over an extended timeframe, Ellison referred to the initial handful of Fusion products focused on CRM (customer relationship management) that have been announced, but he didn't set a detailed timetable for future releases.

Also, Oracle's on-demand business showed strong full-year growth, from $557 million to $694 million, but has remained a fairly small percentage of its overall revenue.

Ellison said the company has been biding its time, working out the kinks in the on-demand model. Rival SAP recently reined in rollout plans for its own on-demand ERP (enterprise resource planning) offering for the midmarket, saying it needed to ensure the product would be profitable enough.

"We've been in the on-demand business almost for a decade. Q4 was the first quarter we actually made money in the on-demand business," Ellison said. "The entire industry has to get better at making money selling on-demand. If you look at Salesforce, they don't make a lot of money. That's what we're focused on before we scale the business." (Salesforce posted net income of $9.55 million on $247.6 million in revenue for the quarter ended April 30.)

Overall, though, Wall Street is increasingly viewing Oracle as a bellwether for the tech space overall, and even the larger economy.

Oracle is making pushes into new verticals as part of its growth strategy. This week it announced the acquisition of Skywire Software, maker of software for the insurance industry. That move followed its recent announcement that it planned to buy AdminServer, another insurance software maker.

Also this week, Oracle said it is forming a new health and sciences business unit.

Meanwhile, the company recently pushed through a series of hefty price increases on its products.

For example, a CPU license for its database is now US$47,500, up from $40,000. Oracle also appears to have raised prices for software it gained through its recent acquisition of BEA.

List prices aren't necessarily what customers pay for software products, as the cost often gets lowered dramatically through negotiations, but now the baseline for talks is now higher, said Ray Wang [cq], an analyst with Forrester Research, in a previous interview.

In a blog post, Wang said the weak dollar is "the main rationale" behind Oracle's move, as the company maintains a single worldwide price list.

"Unlike many vendors who account for global currency fluctuations with country, region, and industry specific uplifts, Oracle maintains consistent pricing in dollars," he wrote. "The dramatic devaluation of the dollar has led to a de-facto discount in the 30 to 35 percent range for multi-nationals who purchase in pounds sterling, euros, and to a lesser extent, yen.

"As a result, price increases mainly impact the US while other Euro-zone countries will not see a major increase in real-dollar terms," he added.

Oracle executives did not refer to the price hikes during their remarks on Wednesday. A company spokeswoman previously declined comment.

A consultant who advises and represents Oracle customers during their negotiations with the company said the ongoing changes at Oracle have created a murky climate for buyers.

"What we're telling clients right now is that it's a very difficult time to buy Oracle licensing," said Eliot Colon, president of Miro Consulting. "There are so many major issues occurring all at the same time."

Many Oracle managers are still in planning sessions surrounding matters such as the BEA integration, and new sales strategies, he said.

Clients who received quotes based on the old price list have until the end of August to act on them, according to Colon. But if Oracle's sales organization faces a crush of last-minute approvals in the last weeks before the deadline, smaller-volume deals may fall by the wayside, he said.

"An approval is usually a layup, it's easy -- but not when you've got thousands of them at the same time," he said.

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