Oracle Boosts Profit, Foresees Modest Growth

"We expect business will continue to modestly improve but be masked somewhat by less favorable currency [rates]," Henley told analysts on Oracle's fourth quarter earnings call Tuesday afternoon. "For full fiscal 2005, if current growth improves, operating income will be up 10 to 20 percent and operating margins up to 40 percent or even more. That's been our goal for several years," Henley said.

Henley and Oracle CEO Larry Ellison credited the growth of the company's subscription business for boosting margins even during tough times.

All of the aforementioned predictions however were made excluding the impact of any large acquisition, so if Oracle succeeds in its hostile quest to buy PeopleSoft, revisions will be in order.

For the fourth quarter of fiscal 2004 ending May 31, 2004, the database giant reported a 15 percent boost in profits, which it attributed to strong sales of its flagship database and ancillary options, including its "RAC" real application cluster technology.

Henley said for the quarter the company probably logged a few hundred million from RAC sales, later putting the number at "very close to $200 million" in new RAC licenses sold.

Asked about overall growth of the core database market, he was more cautious. "The core business is obviously not growing as fast, [probably in the] single digits, and I think I've always said that. To [get to] double-digit growth, we have to make options a big mainstream thing for customers and do a lot better job in Microsoft SQL Server land, which is down market," Henley added

Towards that end, Oracle must ally itself with a range of partners, not just ISVs but resellers and systems integrators, he said. Such partnerships have not been, historically, Oracle's strong suit. Many of its current partners have been alienated by Oracle's rough-and-tumble direct sales force which frequently competes with them for deals. The company is now trying to work out enforceable rules of engagement to defuse that situation. (See story.)

For the just-ended quarter, net income was $990 million, or 19 cents per share, up from $858 million or 16 cents per share for the year-ago period. Consensus estimates were for earnings of 18 cents per share.

Revenue rose to $3.08 billion from $2.83 billion from the year-ago period. Ellison and Henley both pointed to the company's "grid computing" branding of the latest Oracle 10g database as a factor in its success. Oracle shipped Oracle 10g in January. Operating income was $1.4 billion for the just-closed quarter and $3.9 billion for the full year, a figure that CFO Jeff Henley highlighted in the earnings release. "That's the best operating profit we've ever delivered; even better than our best year during the Internet bubble. We had a very strong finish to a very good year," he said.

The strong quarter may relieve some who worried that Oracle's ongoing and antagonistic attempt to buy PeopleSoft was a distraction. Company attorneys are facing off against U.S. Justice Department lawyers in a San Francisco Court, trying to persuade the feds that a converged Oracle-PeopleSoft is not anti-competitive.

ThinkEquity researcher Yun Kim wrote in a report Monday that while the company's prospects overall are solid "we believe it continues to face overhang from its PSFT acquisition effort." Indeed Oracle faces many challenges as Microsoft and IBM beef up their databases and it tries to tailor its enterprise-oriented software for smaller companies with smaller budgets.

Oracle, like IBM, is betting big that more companies will move to a subscription model of software delivery. Towards that end Oracle is trying to bolster its Oracle OnDemand offerings (once known by the less politically correct term of Oracle Outsourcing). Ellison was typically ebullient on the subject Tuesday afternoon. "As the subscriber base gets larger and larger the profit margin grows. Margins can be 80 and 90 percent," Ellison said.

In that model Oracle software is hosted, updated and maintained by Oracle and hosted either by Oracle itself, a partner, or co-located on customer premises.

"There is no reason that every Oracle customer can't be an OnDemand customer even today," Tim Chou, president of Oracle OnDemand told CRN Tuesday morning. People, he said, are starting to realize that the old way of delivering software is disappearing and "the delivery mode for it is no longer a CD."