Oracle reported June 22 a phenomenal fiscal fourth quarter for 2006, beating its own and analysts guidance.
But Oracles Q1 06 guidance—an increase of between 18 to 25 percent on revenue already increased by 25 percent this fourth quarter to $4.9 billion—surprised most everyone on the after-market earnings call on June 22. Perhaps, initially, even Oracle itself.
"The thing that weighs is that I have to be realistic given the volumes—not only the size—but the number of deals in the pipeline," said co-president and Chief Financial Officer Safra Catz in response to an analyst questioning the companys aggressive Q1 guidance, particularly given the slow nature of selling during the traditionally stagnant summer months.
"The [deals] are markedly so up that applying what we think to be realistic close rates, we should be between 18 and 25 percent. The thing we dont know is the closure rate, but we keep getting surprised on the closure rate," Siebel said.
Oracle reported fourth quarter net income at $1.3 billion, up from $1 billion during the same quarter in 2005. But what really sent Oracle flying this quarter was its greater-than-expected application sales, buoyed by its also better-than-expected database sales.
Oracle reported $2.12 billion in total new license sales, a 32 percent increase over the same period in 2005, and a good indicator of future growth.
More importantly, application sales rose a whopping 83 percent—a 56 percent gain over the same quarter in 2005, and one that excludes any software sold under the Retek and Siebel umbrellas, two companies acquired in early 2006.
Database sales, on the other hand, increased 18 percent—a boon for the company given its three previous lackluster quarters for database numbers.
License revenue growth of 32 percent exceeded analysts consensus expectations of 13 percent; the 83 percent applications revenue exceeded expectations of about a 30 percent increase, according to analyst reports.
"We estimate applications license revenue grew 43 to 53 percent organically as adjusted for the acquisitions of Siebel Systems, iflex, Retek, Oblix and others," said analyst Mark Murphy, in a First Albany Capital research note released June 16, the day after Oracle pre-announced its projected earnings increase.
Murphy attributes the strong quarter to a number of factors, including: The seasonally strong nature of Oracles fourth quarter; a likelihood that Oracle is pushing its all-you-can-eat transactions harder; the spill over of deals that did not close in the last few disappointing quarters; and potential cross-sell synergies as Oracle digests its PeopleSoft and Siebel acquisitions.
Charles Phillips, the other co-president at Oracle, attributed some of the gains to a more comfortable customer base.
"Its a combo," said Phillips, during the June 22 earnings call. "One, having the best of breed in so many areas; the other is customers are starting to see the value of having all those [products] in Oracle. So were a lot more important to the customer. Almost any problem they have we have a product for them. It puts us in a new zone."
Over the past two years, Oracle has been on a virtual spending bender, snatching up 17 companies including PeopleSoft in 2004 for nearly $11 billion, and Seibel Jan. 31, 2006, for nearly $6 billion.
Catz hinted that the binge might be over for Oracle while answering a question on Oracles plans to provide guidance on a quarterly versus yearly basis moving forward.
"Were going to go back to the historical way of doing it, just giving one quarter in advance," said Catz. "It will save us from constantly rechecking [numbers] every time we do an acquisition—if we do another one."
Larry Ellison, the companys co-founder and CEO, also hinted at change in the wind at Oracle. When asked about his response to open source he said, "Open source is free for us to take and support, which we may in fact do in the future."
This is not the first time Ellison has portended the inclusion of open source code in Oracles proprietary software.
During a recent interview with the Financial Times, Ellison said that the reason Oracle didnt buy open source middleware provider JBoss (which was snapped up June 6, 2006, by Red Hat) is because it has other options.
"Why didnt we buy JBoss? Because we didnt have to," said Ellison in the Financial Times interview. "If it ever got good enough, wed just take the intellectual property—just like Apache—embed it in our Fusion Middleware suite, and were done."