Oracle Finishes Fiscal '08 with Strong Sales, Earnings

Oracle sales and profits showed no sign of an IT recession as the company reported that license revenue grew 28 percent to $7.5 billion for fiscal '08, the highest growth rate in 10 years.

As a sign that Oracle’s strategy of spending tens of billions of dollars to acquire application software properties is paying off, the company reported new application license growth of 36 percent for the fourth quarter and 38 percent growth for the full year. Oracle President and Chief Financial Officer Safra Catz said this growth rates is about three times faster than the rate reported by arch-rival SAP.

“Fiscal year '08 would have been considered a great year when the economy is booming,” Catz said. “The fact that we put up these results in these times demonstrates that our strategy is working and that our team is executing across the board."

Forrester Research analyst Ray Wang said there hasn’t been any strong indication in the announcements from Oracle and other companies that there has been a significant slowdown in corporate IT spending.

Analysts will be closely watching announcements from other major software companies, including Microsoft and SAP, to see if there has been any slowdown in sales. However, so far all the indications are that they are adhering to their original budgets for 2008 and it’s too early to tell whether there will be IT budget cutbacks in 2009.

Wang also noted that Oracle also raised the U.S. dollar denominated list prices of its products to offset the sharp difference in prices of Euro-denominated products. This will prevent Oracle from taking a significant earnings hit as a result of unfavorable exchange rates, he said.

Oracle also reported that BEA Systems, which Oracle acquired in January, produced $93 million in new software revenue in the quarter. This result exceeded “our expectation significantly as BEA customers welcomed our closing of the transaction,” Catz said.

The results, she said, prove “once again that customers prefer to purchase these products from Oracle."  

However, she also noted that Oracle’s first fiscal 'O9 quarter, which ends in August, will be the first full quarter with BEA as a part of Oracle. “As with every one of our past acquisitions, there is always a short period of adjustment as people and products are brought together,” she said.

Oracle is expecting that BEA will show the same sort of seasonal pattern as Oracle and follow a strong fourth quarter with a weaker first quarter, so Oracle is estimating that BEA will generate between $50 million and $60 million in the first fiscal quarter.

New software license revenue was up 27 percent to $3.1 billion, while new technology license revenues were up 23 percent to $2.1 billion in the fourth quarter and up 24 percent to $5.1 billion for the full year, according to Catz. License update and product support revenue grew 24 percent to $10.3 billion while service revenue was up 21 percent to $4.6 billion.

For fiscal year '08, revenue increased 25 percent to $22.4 billion while net income was up 29 percent to $5.5 billon. Earnings per share for fiscal '08 were up 30 percent.

Oracle CEO Larry Ellison said the fourth quarter was the first in which Oracle made money in the on-demand software business, which is concentrated on its Siebel CRM On Demand service. Ellison said Oracle is now the second largest on-demand software provider next to Salesforce.com.

However, he acknowledged that the on-demand business wasn't growing any faster than the overall business. He said the on-demand software industry, including Salesforce.com, was having a hard time improving profitability. It’s Oracle’s goal, he said, to improve profitability before it tries to scale up the on-demand business.

Ellison also served notice that Oracle wasn’t going to neglect its core database business. Oracle, he said, would announce “a major database innovation” in September. This would likely put the announcement in time for its biggest conference of the year, which is the OpenWorld Show in San Francisco.